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Market Analysis 18/10/2013: Dollar to continue weak along with US rate expectations
Daily Commentary 18.10.2013, Time of writing: 03:30 GMT
The Big Picture Dollar to continue weak along with US rate expectations
The dollar continued to lose ground overnight, with only NZD showing any significant weakness vs USD (largely on technical factors). As we mentioned yesterday, the market believes the Fed is on hold at least until December and perhaps until March, after the next debt ceiling fight. June 2016 Fed Funds futures, which peaked at 2.04% on 5 Sep, are now forecasting only 1.14% Fed Funds at that time, far far below the previous estimate. Bond yields have also been collapsing – the 10yr Treasury yield fell to 2.59% yesterday, down 10 bps on the week and 40 bps below the September highs. Lower rates helped to support US stocks, which closed at a record high yesterday despite some disappointing earnings.
Naturally, lower yields now and expectation that rates in the future will be lower than previously expected are hurting the dollar. Actually the US currency is lower than it was before the “tapering” talk began back in May. That’s probably due to two reasons: one, even back then people assumed that QE was going to end sooner or later, and B) then, the US economy was thought to be on much sounder ground than the Eurozone and UK.
While the FT carried an article yesterday saying that the Fed could still begin tapering in December, Chicago Fed President Evans, an outspoken dove, said the Fed would likely need “a couple of meetings to assess” the economy before moving, while Dallas Fed President Fisher, a more hawkish person, said talk of tapering has “all been swamped by fiscal shenanigans.” Yesterday’s Phili Fed survey was lower than the previous month although it did exceed expectations. Given the good economic reports we’re getting out of other countries recently, we will have to see some improvement in the US statistics before we are likely to see a revival in tapering expectations and hence in the dollar.
China’s Q3 GDP and September industrial production came out in line with expectations. That boosted oil somewhat but it failed to regain all its losses. On the other hand the precious metals with industrial uses – palladium and platinum – did well, as did copper. Gold and silver were also higher on the lower USD and expectations of continued low rates.
Europe and the US have empty economic calendars today. That will shift investors’ focus to Canada’s CPI data. The Bank of Canada’s core measure of CPI for September is expected to have risen by 0.3% mom, an acceleration from 0.2% mom the previous month. This will keep the yoy rate unchanged at 1.1%. There is a noticeable number of central bank speakers to keep the calendar alive: ECB’s Nowotny speaks in Vienna and finally, Feds Lacker, Tarullo and Dudley speak in Washington, while Fed Evans speaks on economy in Chicago and Fed Stein on financial imbalances in Boston.
The Market EUR/USD
• EUR/USD surged, breaking the upper boundary of the symmetrical triangle formation. During the early European morning, the pair is trading above the 1.3644 support (S1). If yesterday’s buying pressure continues, I expect the rate to challenge the 161.8% Fibonacci extension level of the triangle’s width at 1.3750 (R2). Both oscillators violated their downward sloping resistance lines and alongside with the bullish cross of the moving averages. That increases the probability of further upward movement.
• Support: 1.3644 (S1), 1.3564 (S2), 1.3461 (S3)
• Resistance: 1.3706 (R1), 1.3750 (R2), 1.3855 (R3).
EUR/JPY
• EUR/JPY moved higher, breaking above the 133.83 (R1) barrier. At the time of writing the rate is found slightly above it and I expect it to target the 134.94(R1) barrier (100% retracement of the downward movement). The 50-period moving average lies above the 200-moving average, providing support to the price action. Momentum indicators support the notion, since the RSI moves follows an upward path and the MACD, which is already in positive territory, seems ready to cross above its trigger.
• Support: 133.83 (S1), 132.75 (S2), 132.16 (S3).
• Resistance: 134.94 (R1), 135.63 (R2), 136.72 (R3).
EUR/GBP
• EUR/GBP moved lower after testing once more the 38.2% Fibonacci retracement level of the previous uptrend. The price is currently lying slightly above the lower boundary of the correction’s channel. A dip below it followed by a break of the 0.8443 support would signal the completion of the correction. On the other hand, if the rate fails to break that support, we might see it targeting the 0.8552 (R2) barrier, which coincides with the 50% Fibonacci retracement level of the downtrend. Both oscillators continue moving to the downside, making it more likely that we will see the former scenario come to pass.
• Support: 0.8443 (S1), 0.8387 (S2), 0.8332 (S3).
• Resistance: 0.8509 (R1), 0.8552 (R2) and 0.8631 (R3).
Gold
• Gold moved higher as we expected, but what we didn’t expect was the trend line’s break. At the time of writing the yellow metal is finding resistance at the 200-period moving average, which coincides with the 38.2% retracement level of the metal’s downtrend at 1322 (R1). The bulls’ failure to penetrate that hurdle might turn the bias to the downside again. The RSI found resistance at its 70 barrier and moved lower, confirming the validity of the aforementioned hurdle.
• Support: 1305 (S1), 1287 (S2), 1262 (S3).
• Resistance: 1322 (R1), 1343 (R2), 1364 (R3).
Oil
• WTI moved significantly lower, breaking the key floor of 101.02. At the time we thought the bears had lost the battle, they found the strength to achieve that significant break. Technically, such a break should have significant bearish implications, targeting the next support at 99.26 (S1). The price returned back into the blue downtrend channel, while the 50-period moving average remains below the 200-period moving average, confirming the negative picture of WTI.
• Support: 99.26 (S1), 97.36(S2), 96.04(S3).
• Resistance: 101.02 (R1), 102.57(R2), 104.19 (R3).
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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Market Analysis 21/10/2013
Daily Commentary 21.10.2013, Time of writing: 03:30 GMT
Economic Calendar We have a relatively heavy week ahead of us. All the delayed data from the US are coming out and the date for a lot of them is not specified yet. So we will mention them after we know the exact date for each release.
Today, the only certain release is the existing home sales for September which are expected to fall by 3.3% mom, a turnaround from 1.7% mom increase in August.
As for the rest of the week, on Tuesday we get the US nonfarm payrolls and unemployment rate for September. The payrolls are expected to increase from 169K to 180K while the unemployment rate is estimated to remain unchanged at 7.3%. That will be the big event for the week because the Fed is watching the employment data closely to see if the economy is strong enough that they can start to taper off their monthly bond purchases. A non-farm payrolls figure of 200k would be very good for the dollar, while a figure lower than August would be negative.
On Wednesday the Eurozone consumer confidence advance figure for October is expected to rise, but to remain below zero. The preliminary PMI figures for October for China and Europe are coming out on Thursday. In the UK the focus will be on the release of the advance Q2 GDP on Friday. During the same day Japan will publish its national CPI figures for September and Tokyo CPI data for October. Moving to Canada, on Wednesday we have the Bank of Canada rate decision. The rate is expected to remain unchanged. On Wednesday we also get Australian CPI data for the third quarter. Finally during Thursday, the Norges Bank announce its deposit rate (no change is expected).
The Market EUR/USD
• EUR/USD moved lower, after hitting the ceiling of 1.3706 (R1). During the early European morning, the pair is trading slightly below the aforementioned level and if the longs manage to regain last week’s momentum, I expect them to challenge the 161.8% Fibonacci extension level of the triangle’s width at 1.3750 (R2). Although, the MACD is in a bullish territory, it seems ready to cross below its trigger, while the RSI found resistance at its 70 level and moved lower, thus a pullback in the near future should not be ruled out. On the other hand, the 50-period moving average lies above the 200-period moving average (both pointing upwards), increasing the probabilities for the continuation of the upward movement.
• Support: 1.3644 (S1), 1.3564 (S2), 1.3461 (S3)
• Resistance: 1.3706 (R1), 1.3750 (R2), 1.3855 (R3).
EUR/JPY
• EUR/JPY moved in a consolidative mood, remaining slightly above the 133.83 (S1) barrier. If the bulls are strong enough to drive the rate higher, extensions may be triggered towards the next hurdle at 134.94 (R1) (100% retracement of the downward movement). The 50-period moving average lies above the 200-moving average, providing support to the price action. Momentum indicators support the notion, since the RSI follows an upward path and the MACD remains above its equilibrium zero level.
• Support: 133.83 (S1), 132.75 (S2), 132.16 (S3).
• Resistance: 134.94 (R1), 135.63 (R2), 136.72 (R3).
GBP/USD
• GBP/USD moved slightly lower on Friday, but managed to remain above the 1.6125 (S1) support level. A dip below that level would have larger bearish implications, targeting once more the 1.6000 (S2) barrier. On the other hand a rebound near the 1.6125 (S1) support, might extent the upward movement towards new short-term highs. The rate lies above both moving averages, thus the bias remains to the upside.
• Support: 1.6125 (S1), 1.6000 (S2), 1.5890 (S3).
• Resistance: 1.6260 (R1), 1.6376 (R2) and 1.6746 (R3).
Gold
• Gold continued struggling near the 200-period moving average, slightly below the 38.2% retracement level of the metal’s downtrend at 1322 (R1). The bulls’ failure to penetrate that hurdle might turn the bias to the downside again. The MACD lies in a bullish territory, but is ready to cross below its trigger line, while he RSI once more found resistance at its 70 barrier and moved lower, confirming the validity of the aforementioned hurdle.
• Support: 1305 (S1), 1287 (S2), 1262 (S3).
• Resistance: 1322 (R1), 1343 (R2), 1364 (R3).
Oil
• WTI also moved sideways, remaining below the 101.02 (R1) hurdle. Since the bears found the strength to achieve a significant break below that barrier last week, I expect them to trigger extensions targeting the next support at 99.26 (S1). The price remains within the downward sloping channel, also below both the moving averages, confirming the negative picture of WTI.
• Support: 99.26 (S1), 97.36(S2), 96.04(S3).
• Resistance: 101.02 (R1), 102.57(R2), 104.19 (R3).
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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Market Analysis 22/10/2013
Daily Commentary22.10.2013, Time of writing: 03:30 GMT
Economic Calendar It is NFP day and all investors will keep their eyes on US non-farm payrolls and unemployment data for September. A stronger-than-expected non-farm payroll release will probably change the recent downward path of the greenback, since the market might start again to consider tapering in December. The payrolls are expected to increase from 169K to 180K, while the unemployment rate is estimated to remain unchanged at 7.3%.
Later in the day, the Richmond Fed manufacturing index for October is expected to remain unchanged at 0, after last month’s unexpected plunge.
At the same time with the US employment data, we will have the publication of Canada’s retail sales for August with the mom figure estimated to have continued rising by 0.3%, but at a slower pace than in July (0.6%). The retail sales ex auto are also forecast to show a slowdown. (0.2% mom in August vs 1.0% mom in July).
Before that, during the European day, the UK public sector net borrowing for September is expected to show a narrowed deficit of GBP 10bn from a previous release of 11.5bn in August.
In Switzerland, the trade balance for September is expected to show a surplus of CHF 2bn, an increase from the revised figure of CHF 1.86bn.
Overnight, Australia will release its CPI data for the third quarter. The qoq figure is estimated to accelerate to 0.8% from 0.4%. Nonetheless, a slowdown in the yoy figure is expected (1.8% vs 2.4%).
Finally, Bank of England Deputy Governor Charles Bean delivers the keynote speech at the Society of Business Economists, while the ECB’s governing council member Ewald Nowotny speaks in Vienna.
The Market EUR/USD
• EUR/USD moved lower yesterday, remaining between the support level of 1.3644 (S1) and the ceiling at 1.3706 (R1). A lower-than-expected non-farm payroll number today might boost the pair and drive it above its recent highs, targeting the 161.8% Fibonacci extension level of the triangle’s width at 1.3750 (R2). On the other hand, a better figure will probably strengthen the greenback, and a dip below the 1.3644 (S1) might be seen during the day. Technically, the bias remains to the upside since the 50-period moving average remains above the 200-period moving average, but our oscillators are moving lower, confirming the weakness of the longs to overcome the 1.3706 (R1) hurdle.
• Support: 1.3644 (S1), 1.3564 (S2), 1.3461 (S3)
• Resistance: 1.3706 (R1), 1.3750 (R2), 1.3855 (R3).
USD/JPY
• USD/JPY moved higher, breaking above the 98.09 barrier (yesterday’s resistance). During the early European morning, the pair is heading towards the 98.57 (R1) level, where a clear upside violation would trigger extensions towards the 61.8% Fibonacci retracement level of the previous downtrend at 99.05 (R2). Relying on our oscillators does not seem a solid strategy, since both the RSI and the MACD are at relatively neutral levels.
• Support: 98.09 (S1), 97.49 (S2), 97.00 (S3).
• Resistance: 98.57 (R1), 99.05 (R2), 99.66 (R3).
EUR/GBP
• EUR/GBP is moving in a consolidative mood, forming a symmetrical triangle as identified on the 4-hour chart. A break above the upper boundary of the triangle followed by a violation of the 0.8498 (R1), would have larger bullish implications and may target the 50% Fibonacci retracement level of the previous downtrend at 0.8549 (R2). Nonetheless, we should wait for the exit of the sideways formation in order to make any assumptions for the next directional movement of the rate.
• Support: 0.8428 (S1), 0.8388 (S2), 0.8332 (S3).
• Resistance: 0.8498 (R1), 0.8549 (R2) and 0.8600 (R3).
Gold
• Gold remained slightly below the 200-period moving average and the 38.2% retracement level of the metal’s downtrend at 1322 (R1). The bulls’ failure to penetrate that hurdle might turn the bias to the downside again. The MACD achieved a cross below its trigger line, while the RSI continued moving lower, confirming the validity of the aforementioned hurdle.
• Support: 1305 (S1), 1287 (S2), 1262 (S3).
• Resistance: 1322 (R1), 1343 (R2), 1364 (R3).
Oil
• WTI moved significantly lower, reaching the 99.26 barrier and breaking below it. I expect selling pressure to continue pushing WTI lower, since the price remains within the blue downtrend channel, while the 50-period moving average lies below the 200-period moving average. The MACD oscillator crossed below its trigger in its bearish zone, confirming the negative picture for WTI. The RSI lies in its oversold territory, thus an upside corrective wave before the continuation of the downward path should not be ruled out.
• Support: 97.36 (S1), 96.04 (S2), 93.61 (S3).
• Resistance: 99.26 (R1), 101.02 (R2), 102.57 (R3).
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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Market Analysis 23/10/2013
Daily Commentary23.10.2013, Time of writing: 03:30 GMT
The big picture U.S. nonfarm payrolls increased by 148,000 workers in September below forecast of 180,000, the weakest since June 2012. The report suggested that the economy was losing momentum even before the 16-day partial shutdown of the government. Disappointing job data cemented expectations that the Federal Reserve will not start cutting its current $85 billion a month bond buying until March.
The dollar touched a fresh eight-month trough against a basket of currencies. On Tuesday the euro rose to as high as $1.3792, its strongest level since mid-November 2011. It last stood at $1.3780. AUD/USD has hit new five-month high after higher than expectations inflation data was released and reduced expectations for another interest rate cut by the central bank.
Weaker than expected U.S. job data boosted the precious metal’s safe haven edge. Gold was at $1,339.55 an ounce, having risen to a four-week high. On the commodities front, U.S. crude prices fell to $98.24 after the U.S. Energy Information Administration reported higher inventories of oil. Benchmark Brent crude oil out of Europe edged higher following news of a deterioration in relations between the United States and key OPEC oil producer Saudi Arabia.
Today, the European morning starts with news from UK. The Bank of England publishes the minutes of the monetary policy committee’s meeting of 8th-9th Oct, when it left its key rate at a record low 0.5% and its bond-purchase program at GBP 375bn. Later in the day, the US releases its weekly MBA mortgage applications for Oct. 18 (no forecast is available) and its house price index for August. The index is expected to have risen by 0.8% mom, a slowdown from an increase of 1.0% mom in July. After a couple of hours, Eurozone consumer confidence advance figure for October is expected to rise slightly (-14.5 est. vs -14.9 prv.). At the same time, Bank of Canada publishes its rate decision. The rate is expected to remain unchanged at 1.00%. A press conference by governor Poloz will follow to discuss the monetary policy report. Overnight, New Zealand publishes its trade balance data for September. The figure is estimated to show a narrowed deficit of NZD 680mn from a previous release of NZD 1191mn. China’s preliminary PMI data for October are also coming out. The figure is expected to slightly rise from 50.2 to 50.4.
The Market EUR/USD
• EUR/USD surged after yesterday’s lower-than-expected non-farm payrolls number. The pair managed to reach the 161.8% Fibonacci extension level of the triangle’s width and is currently trading below the key level of 1.3800 (R1). If the longs continue the momentum from yesterday and manage to violate that ceiling, I expect them to extend their move towards the next resistance barrier at 1.3858 (R2). The MACD oscillator crossed above its trigger line, confirming yesterday’s acceleration. The RSI entered its overbought area, thus a consolidation during the near future should not be ruled out. The positive picture of the rate is also confirmed by the fact that the 50-period moving average remains above the 200-period moving average, pointing upwards.
• Support: 1.3750 (S1), 1.3706 (S2), 1.3644 (S3)
• Resistance: 1.3800 (R1), 1.3958 (R2), 1.4100 (R3).
EUR/JPY
• EUR/JPY moved significantly higher but off its peak as it moved lower after hitting the ceiling at 135.48 (R2) moved lower. At the time of writing the pair is found below the 134.94 (R1) level moving towards the blue uptrend line. I believe that the downward wave will continue during the day since the RSI just exited its overbought area and is now testing its blue support line. A break below that support line would confirm my suspicions and we may see bears targeting the support barrier at 133.83 (S1). Nonetheless, the overall trend of the pair remains an uptrend for now since the rate is trading above both the moving averages and the blue trend line is not violated yet.
• Support: 133.83 (S1), 132.75 (S2), 132.16 (S3).
• Resistance: 134.94 (R1), 135.48 (R2), 136.72 (R3).
GBP/USD
• GBP/USD also moved higher on the disappointing US data, after rebounding at the 1.6125 (S1) support level. During the European morning the pair is testing its recent highs at1.6260 (R1), where a decisive break would target the ceiling at 1.6380 (R2). Both momentum studies are providing positive indications, since the MACD crossed above its trigger in a bullish territory and the RSI follows an upward path. On the daily chart an uptrend remains in effect since the 9th of July.
• Support: 1.6125 (S1), 1.6000 (S2), 1.5890 (S3).
• Resistance: 1.6260 (R1), 1.6380 (R2) and 1.6465 (R3).
Gold
• Gold also rallied on non-farm payrolls, breaking the hurdle that it was testing for three consecutive days. The precious metal violated the 38.2% Fibonacci retracement level of the previous downtrend at 1322 and is now testing the 50% retracement at 1343 (R1). Since the RSI is ready to exit its overbought zone, I would expect a pullback before the longs regain momentum and target the 61.8% retracement barrier at 1364 (R2).
• Support: 1322 (S1), 1305 (S2), 1287 (S3).
• Resistance: 1343 (R1), 1364 (R2), 1391 (R3).
Oil
• WTI moved significantly lower, reaching the 97.36 (S1) floor. At the time of writing the price is testing that hurdle and if the bears are strong enough to penetrate it, they will drive WTI into territories last seen on the 1st of July. The price remains within the blue downtrend channel, while the 50-period moving average lies below the 200-period moving average, increasing the probabilities of the continuation of the downtrend. An upward retracement within the channel should not be a reason for concern. The RSI lies in its oversold zone, adding significance to a possible corrective wave soon.
• Support: 97.36 (S1), 96.04 (S2), 93.61 (S3).
• Resistance: 99.26 (R1), 101.02 (R2), 102.57 (R3).
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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Market Analysis 24/10/2013
Daily Commentary 24.10.2013, Time of writing: 03:30 GMT
The big picture China's short-term money markets rates rose sharply on Wednesday after the People's Bank of China failed to inject cash for a second day. Regulators are considering taking measures to address inflation risks. The move raises the risk of a slowdown in Chinese activity, which would probably be negative for AUD and commodities. Nonetheless Australia’s currency rebounded from its biggest one-day loss in two months. CHF rose on Wednesday on worries over Chinese monetary policy and copper slid more than 2%.
The euro was nearly unchanged and concerns about Europe's financial sector are seen holding back the common currency. The European Central Bank said on Wednesday it will start stress tests in November for major Eurozone banks in order to build confidence in the sector. The Bank of Canada shifted policy and abandoned 18 months of warnings of an eventual rate increase. After the statement the Canadian dollar weakened to a one-week low against USD. U.S. crude prices rose to about $97 a barrel after falling to a 3-1/2 month low on Wednesday, while Gold was slightly lower as investors sold to lock in profits.
Today’s indicators include the preliminary manufacturing and service-sector PMIs for China, France, Germany and the Eurozone as a whole for October. China got the ball rolling overnight with the figure rising to 50.9, beating estimates of 50.4. The manufacturing PMIs for Europe are all estimated to improve and to be over 50, showing that the Eurozone economy continues expanding, which could benefit the euro. Half an hour after the New York opening, US releases its trade balance data for August. The figure is forecast to show a slightly widened deficit of USD 39.5bn from USD 39.1bn in July. At the same time the weekly jobless claims for Oct. 19 are expected to fall to 340k from 358k. Elsewhare, the Norges Bank and Riksbank announce their policy rates. Both are expected to remain unchanged, so the focus will be on the Governors' press conferences afterwards. Overnight, Japan will publish its national CPI for September and Tokyo CPI for October. Both data are expected to be more or less unchanged. Finally, BoE’s Governor Carney speaks at an event marking the 125th anniversary of the Financial Times. He will hold a press conference after the speech.
The Market EUR/USD
• EUR/USD moved slightly lower and after rebounding at the 1.3750 (S1) support, turned upwards to test once more the key ceiling at 1.3800 (R1). A clear violation of that hurdle may trigger extensions towards the next resistance at 1.3857 (R2). In my opinion, we might experience a pullback before the bulls prevail again, since the RSI is ready to exit its overbought area and the MACD just poked its nose below its trigger line. Nonetheless, as long as the previous low holds (short-term purple flag) the bias remains to the upside. The positive picture of the rate is also confirmed by the fact that the 50-period moving average remains above the 200-period moving average, pointing upwards.
• Support: 1.3750 (S1), 1.3706 (S2), 1.3644 (S3)
• Resistance: 1.3800 (R1), 1.3857 (R2), 1.3958(R3).
USD/JPY
• USD/JPY turned the bias to the downside, after hitting the 61.8% Fibonacci retracement level of the previous downward move. During the early European morning the pair is trading below the 97.49 (R1) resistance and under normal circumstances I would expect the bears to drive the battle lower. However they will have to first deal with the 97.00 (S1) floor before opening the way for further extensions. Both momentum studies follow a downward path, confirming the negative attitude of the rate.
• Support: 97.00 (S1), 96.55 (S2), 95.94 (S3).
• Resistance: 97.49 (R1), 98.09 (R2), 98.57 (R3).
EUR/GBP
• EUR/GBP moved significantly higher, breaking the upper boundary of the symmetrical triangle and the 38.2% Fibonacci retracement level of the previous downtrend. Currently the pair is lying below the neckline of a possible inverse head and shoulders formation (light blue line), where a clear violation might drive the battle towards the 0.8600 (R2) level which coincides with the 61.8% Fibonacci retracement level of the prior downtrend. Short-term studies favor a downward wave for now, but as long as the previous low holds, the picture remains bullish.
• Support: 0.8498 (S1), 0.8428 (S2), 0.8388 (S3).
• Resistance: 0.8549 (R1), 0.8600 (R2) and 0.8652 (R3).
Gold
• Gold found resistance at the 50% Fibonacci retracement level of the former downtrend and moved lower. At the time of writing the precious metal seems ready to turn back up and give another test to that level. A clear penetration above that barrier would drive the battle towards the 61.8% Fibonacci retracement level at 1364 (R2). The price is trading above both the moving averages, forming higher highs and higher lows, favoring further upward movement.
• Support: 1322 (S1), 1305 (S2), 1287 (S3).
• Resistance: 1343 (R1), 1364 (R2), 1391 (R3).
Oil
• WTI found support near the 97.00 (S1) level and the lower boundary of the channel and moved slightly higher. An upward wave within the channel should not be a reason for concern. A forthcoming upside movement is supported by our short term studies, since the RSI just escaped from its oversold zone, while the MACD indicator seems ready to cross above its trigger line. However, the overall downtrend remains in effect since WTI is trading within the channel and below both moving averages.
• Support: 97.00 (S1), 95.17 (S2), 93.13 (S3).
• Resistance: 99.32 (R1), 101.02 (R2), 103.05 (R3).
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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Market Analysis 28/10/2013: Dollar-selling momentum eases
Daily Commentary 28.10.2013, Time of writing: 03:30 GMT
The big picture Dollar-selling momentum eases The dollar is little changed this morning, with most currencies close to the levels that prevailed at the same time Friday morning. The dollar scored its largest gains vs JPY as Japanese stocks performed well, while on the other hand the US currency was lower vs the Scandis, particularly SEK following better-than-expected Swedish manufacturing confidence data on Friday and ahead of more Swedish data later today (see below). AUD and NZD continued to be weak along with Chinese equities.
The economic picture is beginning to change. The news from the US last week was fairly weak, including an unexpected fall in core durable goods and a big drop in consumer confidence. US consumers’ opinion of their government hit the lowest level in the 50-year history of the survey and only a quarter of households expect their incomes to grow over the next year. On the other hand, the German Ifo index still indicates moderate growth (although it fell for the first time in six months) and flows into European equities are at record levels. It looks like the fundamentals that had underpinned a stronger dollar have now shifted and the US currency is likely to remain weak until we start to get some better data from the US.
We have a light calendar today, but a heavy one for the whole week. Only second-tier European indicators are out today. These are Italian business confidence for October, which is estimated to decline to 96.3 from 96.6 in September; Swedish retail sales for September, which is expected to be up by 0.6% mom, an acceleration from a 0.3% mom increase in August; and Swedish trade balance for September, which is forecast to have risen sharply to SEK +6.2bn from SEK +3.2bn in August (NSA). Later in the day, US industrial production for September is forecast to rise by 0.4% mom, the same as in August. US pending home sales for September are expected to see no change on a mom basis. The Dallas Fed manufacturing activity for October is also out with no estimation available. Overnight Japan will publish its unemployment rate for September which is expected to be down to 4.0% from 4.1% in August. As for the week as a whole, the big event is the FOMC meeting Tuesday and Wednesday. No one expects a change of the current policy; rather, the discussion will probably center on whether to institute a more formal rule-based methodology for changing policy vs the current discretionary policy.
The Market EUR/USD
• EUR/USD continued struggling near the 1.3800 (S1) key level. Currently the pair is trading slightly above that level but the longs do not seem strong enough to drive the action higher. In my opinion, we might experience further consolidation or a correcting wave, since the RSI exited its overbought area and the MACD lies below its trigger line. Nonetheless, as long as the previous low holds (short-term purple flag) the bias remains to the upside. The positive picture of the rate is also confirmed by the fact that the 50-period moving average remains above the 200-period moving average, pointing upwards.
• Support: 1.3800 (S1), 1.3750 (S2), 1.3706 (S3)
• Resistance: 1.3857 (R1), 1.3935 (R2), 1.4012(R3).
EUR/JPY
• EUR/JPY moved higher on Friday after rebounding from the 133.83 (S1) level and the 50-period moving average. During the early European morning the pair is testing the 134.91 (R1) resistance level, where a decisive violation would trigger extensions targeting new short term highs. Both momentum studies provide positive indications since the RSI is moving upwards and the MACD crossed above its trigger in a bullish territory.
• Support: 133.83 (S1), 132.75 (S2), 132.16 (S3).
• Resistance: 134.91 (R1), 135.48 (R2), 136.72 (R3).
GBP/USD
• GBP/USD moved lower and moved slightly higher after hitting the support at the 1.6162 (S1) barrier. We might see the price targeting once more the strong ceiling of 1.6260 (R1), but another failure of the bulls to overcome that hurdle could be the first sign of the beginning of a short-term correcting phase. Both oscillators follow a downward path, adding significance to our suspicions for a probable corrective phase. However, the picture of the rate remains positive for now, since the 50-period moving average lies above the 200-period moving average and the longer-term uptrend remains in effect.
• Support: 1.6162 (S1), 1.6125 (S2), 1.6000 (S3).
• Resistance: 1.6260 (R1), 1.6375 (R2) and 1.6442 (R3).
Gold
• Gold successfully tested the 1343 (S1) support and moved higher. At the time of writing the metal lies between that barrier and the resistance of 1364 (R1), which coincides with the 61.8% Fibonacci retracement level of the previous downtrend. The 50-period moving average achieved a bullish cross above the 200-period moving average favoring the continuation of the upside path. My only concern is that RSI tested its 70 level several times during the last week, thus we might experience a pullback before any further upside wave.
• Support: 1343 (S1), 1322 (S2), 1305 (S3).
• Resistance: 1364 (R1), 1391 (R2), 1415 (R3).
Oil
• WTI continued consolidating near 97.70 (R1). I would expect the corrective wave to continue towards the next resistance level at 99.32 (R2) and near the 50-period moving average. Further upside movement is supported by the MACD indicator which, although in a bearish territory, lies above its signal line. However, the overall downtrend remains in effect since WTI is trading within the downward sloping channel and below both moving averages.
• Support: 96.00 (S1), 93.61 (S2), 91.22 (S3).
• Resistance: 97.70 (R1), 99.32 (R2), 101.00 (R3).
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Market Analysis 29/10/2013
Daily Commentary 29.10.2013, Time of writing: 03:30 GMT
The big picture Dollar rallies ahead of FOMC despite weak US data The dollar rallied against almost all its G10 counterparts yesterday despite continuing soft US economic data. US industrial production rose +0.6% mom in Sep, but this was largely due to utilities -- manufacturing output rose only +0.1% (vs +0.3% expected and +0.5% previous). Of particular note was a 0.5% drop in production of computer and electronic products, which is important because this component is used to estimate equipment spending in the GDP accounts. To make matters worse, pending home sales plunged 5.6% mom (no change expected), the largest drop in more than three years, as it seems that housing demand was brought forward by expectations of rising rates. On top of which, the Dallas Fed manufacturing activity survey was also far weaker than expected (3.6 vs 10.0 expected, 12.8 previous). Yet there has been a constant pattern recently of USD buying early in the US session, perhaps helped yesterday by weakness in European financial stocks, and the dollar is generally higher this morning as a result.
The dollar buying may represent cautiousness ahead of this week’s FOMC meeting. While no change in policy is expected at the meeting, the fact is that the bulk of the moves in EUR/USD this year have come on FOMC, ECB and US payrolls days. Thus some investors may be positioning themselves in anticipation of a dollar reversal after the FOMC meeting, as indicated by purchases of short-dated USD calls. Probably, some people think that there is only a narrow window of opportunity for the Fed to begin tapering before the negotiations over the US government budget start up again in December and that the FOMC may decide to take a chance rather than miss this opportunity. Personally, I disagree – given the slowdown in hiring recently, I think that if anything the FOMC would be more likely to vote for further quantitative easing at this point than for tapering off its existing QE, although that too seems extremely unlikely.
The dollar scored its largest gains overnight vs AUD after RBA Gov. Stevens said the AUD’s value was not supported by the fundamentals and predicted that the currency would at some point be “materially lower than it is today.” It also gained vs SEK following yesterday’s disappointing Swedish retail sales figures. GBP/USD fell after Bank of England Economic Advisor David Miles said it could be “catastrophic” to raise rates too soon. The exception is USD/JPY, which is slightly lower after better-than-expected Japanese retail sales figures (+1.8% mom vs +0.5% expected).
During the European morning we get UK mortgage approvals for September, which are expected to have increased for a third consecutive month. Later in the day, US retail sales for September excluding autos and gasoline are forecast to be up by 0.5% vs an increase of 0.1% in August. That could help to boost USD further, although as we noted above, yesterday’s weaker-than-expected data did not hurt the dollar. US core producer prices for September are forecast to rise 0.1% mom after having remained unchanged the previous month. We also have the Case/Shiller house price index for August, which is estimated to show a rise of 12.40% yoy, about the same as in August. Finally, the Conference Board consumer confidence index for October is forecast to fall to 75.0 from 79.7 in September, which would surprise no one.
The Market EUR/USD
• EUR/USD moved once again below 1.3800, confirming the inability of the longs to drive the action higher. I would expect the downward wave to continue, maybe to test once more February’s highs at 1.3706 (S2). Both momentum indicators continued their downward path, enhancing the scenario for the continuation of the pullback. However, the rate is still trading above both the moving averages, so I would consider any downward move as a retracement for now. On the daily chart, a long term uptrend remains in effect.
• Support: 1.3750 (S1), 1.3706 (S2), 1.3644 (S3)
• Resistance: 1.3792 (R1), 1.3857 (R2), 1.3935 (R3).
USD/JPY
• USD/JPY confirmed our worries and on Monday rebounded at the 97.00 (S1) key floor. Yesterday the price touched the resistance at 97.78 (R1) and moved slightly lower. In my opinion, the bears might drive the rate further down to test once more the strong support at 97.00 (S1). Both oscillators lie near their neutral levels, not giving any clues for the forthcoming wave. However, the bias for now remains to the downside, since the price is moving within a short-term downward slopping channel.
• Support: 97.00 (S1), 96.55 (S2), 95.94 (S3).
• Resistance: 97.78 (R1), 98.51 (R2), 98.98 (R3).
EUR/GBP
• EUR/GBP moved significantly higher, breaking the light blue neckline of a possible inverse head and shoulders formation and reaching the 161.8% Fibonacci extension target of the triangle’s width. A decisive break above the 0.8577 (R1) resistance would add significance to the validity of the formation. We may see buying pressure driving the rate towards next resistance areas. The picture of the rate remains positive, since the 50-period moving average lies above the 200-period moving average.
• Support: 0.8539 (S1), 0.8509 (S2), 0.8462 (S3).
• Resistance: 0.8577 (R1), 0.8609 (R2) and 0.8652 (R3).
Gold
• Gold remained where we left it yesterday, between the 1343 barrier and the resistance of 1364 (R1), which coincides with the 61.8% Fibonacci retracement level of the prior downtrend. If the bulls are strong enough to overcome that hurdle, they would target the next resistance at 1391 (R2). The price is trading above both the moving averages, forming higher highs and higher lows, favoring further upward movement. On the daily chart, the metal is forming a possible inverse head and shoulders pattern, but is not completed yet.
• Support: 1343 (S1), 1322 (S2), 1305 (S3).
• Resistance: 1364 (R1), 1391 (R2), 1415 (R3).
Oil
• WTI moved higher and is currently trading between the 97.70 (S1) support and the 99.32 (R1) resistance level. The price remains in a corrective phase, and as long as the wave is within the channel, there is no reason for concern. We would reconsider our analysis upon a violation of the channel’s upper boundary and the 101.00 (R2) key hurdle.
• At present, the overall downtrend remains in effect since WTI is trading within the downward sloping channel and below both moving averages.
• Support: 97.70 (S1), 96.00 (S2), 93.61 (S3).
• Resistance: 99.32 (R1), 101.00 (R2), 102.92 (R3).
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Market Analysis 01/11/2013: Low Eurozone inflation raises ECB risk
Daily Commentary01.11.2013, Time of writing: 03:30 GMT
The big picture Low Eurozone inflation raises ECB risk: Individual country stories seem to dominate the market this morning. The dollar is generally stronger but with wider-than-usual variation: up nearly 1.2% over the last 24 hours vs SEK and EUR but down nearly 0.5% vs JPY and CAD.
The main story in FX was yesterday’s shockingly low Eurozone inflation data. Combined with record Eurozone unemployment, it is raising talk about the Eurozone possibly falling into a Japanese-style deflationary trap. Coming after dovish comments from ECB Council member Nowotny, the surprising data increased speculation about more aggressive ECB action as early as next week’s ECB meeting. EUR/USD fell sharply and cross-EUR trades such as EUR/GBP collapsed as well. I expect EUR/USD to move generally lower ahead of next week’s ECB meeting as the market positions for a possible change in ECB stance. I expect the bears to be disappointed and to see a bounce-back if the ECB remains on hold for now as seems likely to me. Inflation is a lagging indicator and what matters for the ECB nowadays is credit origination. The latest bank lending survey was reassuring about that, which I think will keep the ECB on hold for the time being.
The downward pressure on the euro was compounded by some rare good news for the dollar. Jobless claims came in as expected at 340k, which suggests that the distortions caused by the government shutdown are over but the economy may still be feeling the impact. Subsequently the Chicago PMI shocked the market with a 10.2-point surge, the largest monthly increase since 1983. The extremely high level caused some analysts to revise up their forecast for today’s October US ISM (market forecast: 55.0 vs Sep 56.2) and for US growth in general. Coming after a string of softer-than-expected US data, the report has raised hopes that the US can maintain momentum despite the government shutdown and thereby supported the dollar and the high-beta currencies.
Adding to that view was news overnight that China’s official PMI rose more than expected to an 18-month high while the HSBC/Markit PMI also gained. HSBC’s PMI for South Korea broke above the 50 line for the first time since May and the Taiwan PMI also gained. This good news from Asia suggests that concerns of a slowdown in China may be overblown and global growth may be more resilient than had been feared. That benefitted the commodity currencies (along with higher-than-expected Canadian GDP for August out yesterday). Strong global growth and a continuation of QE in the US offer a good background for these currencies.
Following on from Asia, we have the rest of the global PMIs coming out today. The UK manufacturing PMI for October is estimated to fall slightly to 56.4 from 56.7. However, I do not believe that such a small decline with the index at such a high level would affect the pound. Norway’s manufacturing PMI for October is estimated to slightly rise to 52.4 from 52.3 while the country’s unemployment rate for the same month is estimated to decline to 2.5% from 2.6%. Such a combination could boost the NOK and help it to recover a portion of its recent losses against the USD. SEK was down sharply overnight; Sweden’s PMI is forecast to fall sharply to 54.5 from 56.0, but the good news out of Asia suggests that a positive surprise is possible there. As mentioned above, the US ISM manufacturing index is also forecast to decline, but the sharp jump in the Chicago PMI suggests we could be in for a USD-positive surprise. Finally, we have two Fed speakers, who may shed some light on this week’s FOMC meeting: St. Louis Fed President Bullard, who is a centrist, and Richmond Fed President Lacker, who is a noted hawk.
The Market EUR/USD
• EUR/USD collapsed yesterday as rising unemployment and falling inflation in the Eurozone increased the possibility that the ECB might loosen policy further. The plunge was halted by the 1.3545 (S1) support, which coincides with the 38.2% Fibonacci retracement level of the Sept 6th – Oct 25th advance. A clear violation below that barrier would target the next support at 1.3471(S2). However, I would expect an upward wave or a consolidation during the European trading day, since the RSI indicates oversold conditions and we might see it crossing above 30 during the day. The short-term bias remains to the downside since the rate crossed below both moving averages. On the daily chart, a long term uptrend remains in effect.
• Support: 1.3545 (S1), 1.3471 (S2), 1.3385 (S3)
• Resistance: 1.3644 (R1), 1.3706 (R2), 1.3783 (R3).
USD/JPY
• USD/JPY failed to break above the 98.51 (R1) level, confirming my suspicions about the strength of the resistance. The price moved below the downtrend line and is currently testing the 50-period moving average. The first hurdle for the bears is found at 97.78 (S1) and if they manage to overcome it, they might target once more the strong floor at 97.00 (S2). Momentum studies favor further downward movement, since the RSI is moving downwards, while the MACD crossed below its trigger line.
• Support: 97.78 (S1), 97.00 (S2), 96.55 (S3).
• Resistance: 98.51 (R1), 98.98 (R2), 99.65 (R3).
GBP/USD
• GBP/USD moved in a consolidative mood after challenging the 1.6000 (S1) key support level and the 200-period moving average. The pair found enough support at those levels and the bears would have to achieve a decisive dip below them before targeting next support areas. On the weekly chart an “evening star” candle formation is identified, suggesting that we might see a weaker cable the next few weeks.
• Support: 1.6000 (S1), 1.5890 (S2), 1.5772 (S3).
• Resistance: 1.6076 (R1), 1.6162 (R2) and 1.6260 (R3).
Gold
• Gold moved lower during yesterday’s activity and found support at the 1320 (S1) level. If the longs manage to maintain the metal above that strong barrier, I would expect them to challenge once more the 61.8% Fibonacci retracement level of the prior short-term downtrend. However, a break below that level would mean that the recent upward wave was just a correction of the aforementioned downtrend and the price might follow a downward path. Relying on momentum studies does not seem a solid strategy, since they provide mixed signals. The MACD entered its bearish territory, while the RSI found support near its 30 level and moved slightly higher.
• Support: 1320 (S1), 1290 (S2), 1269 (S3).
• Resistance: 1342 (R1), 1363 (R2), 1391 (R3).
Oil
• WTI moved lower and hit the strong floor of 96.00 (S1). The last time we experienced a daily close below that level was back in June. I believe that we are likely to see the price struggling near that hurdle or maybe another upside short-term corrective wave. Our indicators confirm the validity of the strong support, since the RSI rebounded from its 30 level, while the MACD, although in a bearish territory, seems ready to cross above its signal line.
• Support: 96.00 (S1), 93.61 (S2), 91.22 (S3).
• Resistance: 97.70 (R1), 99.32 (R2), 101.00 (R3).
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Market Analysis 04/11/2013
Daily Commentary 04.11.2013, Time of writing: 03:30 GMT
The big picture How quickly things change! Two weeks ago it looked as if the dollar was headed to disaster. Now, the US currency is back to the level of early September, around the time when the Fed decided to put off “tapering” its monthly bond purchases. The dollar has rallied 2.3% vs the EUR over the past week, which is amazing considering the total range for 2013 up until the end of September was 7.6%.
That change reflects several points:
The return of “tapering:” When the FOMC decided in September not to go ahead with “tapering” off their monthly bond purchases, they generally agreed that tapering would begin by the December meeting. After the government shut-down and debt ceiling debacle, the market pushed off the start of tapering until March. However the possibility of an earlier start is coming back. For example, Philadelphia Fed President Plosser, a hawk, Friday said that the FOMC could finesse the issue by announcing an overall limit in dollars to the current QE program. That would mean if they do not start tapering soon, then they just end the QE program earlier, whereas if they start tapering, it means the smaller purchases last for that much longer. St. Louis Fed President Bullard, a centrist, focused on the improvement in the unemployment rate and said the odds of tapering will rise as the labor market improves. Meanwhile, Richmond Fed President Lacker, another hawk, also said that the labor market has improved significantly.
Problems on the euro side: The sharp drop in inflation and rise in unemployment in the Eurozone has put pressure on the ECB to “do something” and increased speculation that that “something” could come as early as this week’s meeting. A change in the refinancing rate would probably be too much, but some investors think they could announce some emergency measures, such as a new super-LTRO (long-term refinancing operation) or softer collateral requirements. Personally, I think such an action would mean that they were giving up on their recovery scenario, which I can’t see happening yet when so much of the news about the Eurozone is, if not good, then at least less bad than it’s been for some time. I don’t expect the ECB to take any new action until perhaps the December meeting, when it will publish its new economic forecasts.
More confidence about the US: Friday’s purchasing managers’ indices (PMIs) showed generally expanding growth around the world, with one thing clear: the US is still leading the pack. If we look at the Institute of Supply Managers’ (ISM) index rather than the Markit PMI, then the US ISM of 56.4 was the best, followed by 56.0 in the UK. The US ISM has risen for an unusually long five months in a row, which is a significant sign of resiliance. The Eurozone final PMI comes out today; expectations are that it will be unchanged at 51.3, showing some modest expansion but still well below the US. So the strong US/weak rest-of-the-world thesis that had been driving the dollar before the September FOMC meeting and the government shut-down is coming back.
I expect there could be a pull-back in the dollar ahead of Thursday’s ECB meeting as investors reassess the probability of the ECB taking any action. Also the non-farm payrolls on Friday may be disappointing, as the government shut-down is likely to raise the unemployment rate (the household survey will count government workers who were furloughed with pay as unemployed, although the establishment survey, which is the base for the payrolls figure, will count them as employed.) Nonetheless if it turns out that the government shut-down had less impact on the US economy than expected, as looks likely from the PMIs, we can look for EUR/USD to return at least towards its 12-month average of around 1.3200 or even lower.
For today, the rest of the Eurozone manufacturing PMIs are the major feature. Italy’s PMI is expected to slightly rise to 51.0 from 50.8. The market expects no change in the final releases for France, Germany and the Eurozone as a whole compared to their preliminary estimates, which were 49.4, 51.5 and 51.3 respectively. In the UK, the construction PMI is forecast to decline in October to 58.8 from 58.9, but given that Friday’s small fall in the manufacturing PMI didn’t really affect the pound, I wouldn’t expect this to affect it either. Later in the day, US Factory orders for August and September will be released at the same time, because of the government shut-down. The September orders are estimated to have advanced by 1.8%. Given the confusion over these indicators, the market may choose to ignore them. We also have three Fed and two ECB speakers. Fed’s Fisher and Powell will speak on monetary policy and Fed’s Rosengren speaks on the economy. ECB’s Constancio and ECB’s Ammussen will be talking during the European day. Their comments are likely to be the main market drivers today.
As for the rest of the week, the focus will be on the ECB meeting on Thursday and Friday’s US non-farm payrolls, as mentioned above. There is also a Bank of England meeting on Thursday, but these have been non-events recently. The Reserve Bank of Australia (RBA) meets Tuesday; none of the economists polled expect a change in rates, so the focus will be on the tone of the statement.
The Market EUR/USD
• EUR/USD continued moving lower Friday, breaking below the 1.3545 barrier (Friday’s support), which coincides with the 38.2% Fibonacci retracement level of the Sept 6th – Oct 25th advance. Early Monday European time the pair is testing the 1.3467 (S1) barrier (50% Fibonacci retracement) and the long-term uptrend line. A clear dip below that strong area might extend the bearish wave towards the 61.8% Fibonacci retracement level at 1.3381 (S2). I wouldn’t rely on the oversold RSI, since it has remained below 30 for an extended period of time. However I would start considering upward corrective waves in EUR/USD upon the RSI’s exit of the oversold zone. The short-term bias remains to the downside since the rate is trading below both moving averages.
• Support: 1.3467(S1), 1.3381 (S2), 1.3321(S3)
• Resistance: 1.3545 (R1), 1.3644 (R2), 1.3706 (R3).
EUR/JPY
• EUR/JPY continued moving lower after breaking the blue support line, but the fall was halted by the 61.8% Fibonacci retracement level of the prior upward move. The rate rebounded at that level, driving the RSI above its 30 level. In my opinion, the bears will give another attempt to overcome that obstacle and if they manage to do so, the next support is found at 132.16 (S2). On the weekly chart, a rising wedge and a bearish engulfing candlestick pattern are identified, suggesting a weaker pair the following weeks.
• Support: 132.75 (S1), 132.16 (S2), 131.13 (S3).
• Resistance: 133.86 (R1), 134.47 (R2), 135.48 (R3).
GBP/USD
• GBP/USD moved significantly lower, violating the critical support barrier at 1.6000 (Friday’s support). The pair now seems ready to challenge the 1.5890 (S1) hurdle, where a decisive dip would complete the double top reversal formation mentioned in previous comments. Both momentum studies continued following their downward paths, adding significance to the bearish scenario. On the weekly chart an “evening star” candle formation is identified, suggesting that we might see a weaker cable the next few weeks.
• Support: 1.5890 (S1), 1.5772 (S2), 1.5694 (S3).
• Resistance: 1.6000 (R1), 1.6076 (R2) and 1.6162 (R3).
Gold
• Gold moved lower, breaking below the 1320 level and reaching the 1305 (S1) support barrier. If selling pressure continues pushing the metal lower, I expect extensions towards next support areas. However, the RSI is finding support at its 30 barrier and we might experience some consolidation before the bears prevail again. Further downward extensions would confirm my suspicions that the recent advance was just a 61.8% retracement of the prior downtrend (marked with the blue downtrend line).
• Support: 1305 (S1), 1290 (S2), 1269 (S3).
• Resistance: 1320 (R1), 1342 (R2), 1363 (R3).
Oil
• WTI managed to overcome the strong hurdle at 96.00 (Friday’s support). During the early European morning, the price seems ready to challenge the lower boundary of the valid downward sloping channel, thus a short-term upward corrective wave should not be ruled out. Since WTI remains within the channel and below both the moving averages, I expect the downtrend to continue towards the next support areas. The MACD oscillator lies below its trigger, in a bearish territory, completing the negative picture for WTI.
• Support: 93.61 (S1), 91.22 (S2), 89.32 (S3).
• Resistance: 96.00 (R1), 98.81 (R2), 101.00 (R3).
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Market Analysis 05/11/2013
Daily Commentary 05.11.2013, Time of writing: 03:30 GMT
The big picture Dollar off as no Eurozone crisis, no US outperformance
The dollar weakened against most currencies as Eurozone indicators showed no new signs of weakness and US indicators showed no new signs of strength. Press reports played down the likelihood of ECB action this week and argued that December seemed to be a more reasonable time to expect a refi action, something I agree with. As a result expectations of ECB action on Thursday faded somewhat, while expectations of early Fed action faded somewhat as well. The result was a lower dollar and a stronger euro.
The European purchasing managers’ indices showed modest growth and nothing dramatic enough to warrant immediate action by the ECB. Export-oriented economies did the best: Germany remained the linchpin of the ECB, with its final manufacturing PMI coming in above expectations, while Spain had the strongest reading since March 2011. But Italy and France lost momentum somewhat. On the other hand, US factory orders showed some weakness: orders for capital goods sank more than previously estimated in September, with new orders of non-military capital goods other than aircraft, an indicator of business spending plans, falling 1.3% mom in Sept after a 1.0% rise in August. The disappointing durable goods figure was followed by a somewhat gentler tone from the Fed. Governor Powell said policy is “likely to remain highly accommodative for some time” and that the timing of the start of tapering is “necessarily uncertain” as it depends on the economy. I still expect the USD to remain well bid but it could retrace some of its recent sudden gains.
Although USD lost ground against most currencies, it gained somewhat vs AUD after the Reserve Bank of Australia left its benchmark interest rate unchanged (as was unanimously expected) and Gov. Stevens said that the currency remained “uncomfortably high.” The central bank seems focused on the currency, but as there are little expectations of another rate cut any time soon, the authorities are resorting to jawboning. Expect more such comments if the AUD tries to strengthen further. This should prevent AUD outperformance; the other commodity currencies look like a better investment. AUD/CAD and AUD/NZD have started to move lower; those trends seem likely to continue.
Sterling strengthened after the Confederation of British Industry (CBI) revised up its forecast for the country's growth and the construction PMI rose to 59.4 (vs an expected fall to 58.7; 58.9 previous). Investors wanting to avoid the to-and-fro of the EUR/USD trade might want to look at GBP/JPY, which has come down in the past few days; this pair seems to have more fundamental underpinning and could see some gains.
For today, the focus of attention will be on ECB President Mario Draghi who speaks in Frankfurt ahead of Thursday’s ECB rate decision. ECB’s Constancio and ECB’s Asmussen also speak again; they talked on Monday too. In the US, the Fed’s Lacker speaks on labor market in North Carolina, while Fed’s William speaks to reporters in San Francisco. As for indicators, Swiss CPI for October is expected to increase 0.1% mom, a slowdown from +0.3% mom in September. Approximately an hour later UK services PMI for October is forecast to fall to 60.0 from 60.3 but such a modest decline from such a high level is not likely to affect the pound. In the US, the service-sector ISM for October will be released. It’s usually not as market-affecting as the manufacturing index, but it is important. Forecasts are that it falls to 54.0 from 54.4.
The Market EUR/USD
• EUR/USD moved slightly higher after finding support near the 50% Fibonacci retracement level of the Sept 6th – Oct 25th advance and the longer-term uptrend line. If the bulls manage to drive the rate above the 1.3545 (R1) barrier, then I would consider the recent fall as a retracement of the overall uptrend and expect that the pair has returned to its previous direction. On the other hand, a downward penetration below that support area might extend the bearish wave towards the 61.8% Fibonacci retracement level at 1.3381 (S2). On the daily chart the long term uptrend remains in effect since the rate is still trading above the uptrend line.
• Support: 1.3467 (S1), 1.3381 (S2), 1.3321(S3)
• Resistance: 1.3545 (R1), 1.3644 (R2), 1.3706 (R3).
USD/JPY
• USD/JPY hit the 98.23 (S1) support level and the blue uptrend line and moved higher. If the longs manage to maintain the rate above the trend line, I expect them to challenge once more the 98.84 (R1) resistance barrier. The 50-period moving average crossed above the 200-period moving average, confirming the establishment of the new short-term uptrend. On the daily chart, a symmetrical triangle is identified, where the clear exit of the formation would indicate the next longer-term direction for the pair.
• Support: 98.23 (S1), 97.78 (S2), 97.00 (S3).
• Resistance: 98.84 (R1), 99.17 (R2), 99.65 (R3).
EUR/GBP
• EUR/GBP is moving in a consolidative mood, stubbornly testing the 0.8448 (S1) support. I believe that a decisive break below that level would confirm that the consolidation is a rectangle continuation pattern and I would expect extensions towards the next support barrier at 0.8399 (S2). The rate is trading below both moving averages, while the MACD lies in its negative zone, favoring further decline.
• Support: 0.8448 (S1), 0.8399 (S2), 0.8339 (S3).
• Resistance: 0.8507 (R1), 0.8552 (R2) and 0.8585 (R3).
Gold
• Gold moved sideways, remaining between the 1305 (S1) support level and the resistance of 1320 (R1). A clear downward violation of the 1305 (S1) barrier would have larger bearish implications and would confirm my suspicions that the recent advance was just a 61.8% retracement of the prior downtrend (marked with the blue downtrend line). However, the RSI rebounded from its 30 level and further consolidation or an upward wave in the price during the day would not surprise me.
• Support: 1305 (S1), 1290 (S2), 1269 (S3).
• Resistance: 1320 (R1), 1342 (R2), 1363 (R3).
Oil
• WTI also moved sideways, remaining near the lower boundary of the downward sloping channel. I would expect a short-term upward wave within the channel, since the RSI seems ready to exit its oversold zone and the MACD, although in its negative territory, is ready to cross above its trigger line. The overall trend of WTI remains a downtrend since the price is trading within the blue downward sloping channel and the 50-period moving average remains below the 200-period moving average.
• Support: 93.61 (S1), 91.22 (S2), 89.32 (S3).
• Resistance: 96.00 (R1), 98.81 (R2), 101.00 (R3).
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