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Market Analysis 05/12/2013
Daily Commentary05.12.2013, Time of writing: 03:30 GMT
The big picture The dollar held gains against the other major currencies on Wednesday after the release of mixed U.S. economic reports. The ADP report showed U.S. private employers added 215,000 jobs to their payrolls last month, the biggest increase in a year, and the U.S. trade deficit narrowed to USD 40.6bn in October from a deficit of USD 43.0bn in September. But the non-manufacturing purchasing manager's index declined to 53.9 in November from 55.4 in October. Investors are cautious ahead of the influential U.S. jobs report on Friday. Any upside surprise in the payrolls report will raise expectations of Fed tapering stimulus and could lift the dollar. The euro held steady against the dollar as investors appeared reluctant to take major positions ahead of today's ECB meeting. The ECB is expected to hold off any fresh policy action. The yen held off a five-year trough on the euro and a six-month low versus the dollar on Thursday as investors held their bets ahead of key events. Sterling held steady, not far from a two-year peak set earlier in the week. Central bank policy makers will meet today and are almost certain to leave the key rate unchanged at 0.5 percent. The Aussie slipped more than 1% and set a three-month low after third quarter GDP disappointed investors. Bank of Canada held interest rates steady and was more dovish in its outlook. The Canadian dollar touched a 3-1/2 year low versus the dollar on Wednesday.
U.S. crude oil futures prices edged higher, up for a fourth straight day as government data showed an unexpected drop in U.S. stockpiles. Brent crude edged lower on Thursday after OPEC agreed to renew a collective oil production cap and some members talked about raising output next year. OPEC agreed on Wednesday to keep its production target unchanged at 30 million barrels per day (bpd) for the first half of 2014. Gold edged lower on Thursday following a short-covering rally.
Monetary policy will once again be the focus of currency markets today. Norges Bank, BoE and ECB are holding their policy meetings. While the market expects no change from any of them, the focus will as usual be on the ECB press conference held by President Mario Draghi and the Bank’s forecasts for the economy.
As for the indicators, in US, the second estimate of Q3 GDP is expected to show an annualized rise of 3.1%, an acceleration from the initial estimate of +2.8%. Weekly jobless claims for Nov. 30 are estimated at 321k vs 316k, while factory orders are forecast to decline by 1.0% mom in October, a turnaround from +1.7% in September. Elsewhere, Canada’s building permits for October are expected to be up 1.0% mom, a slowdown from +1.7% in September. We have two FOMC members speaking today: Atlanta Fed President Dennis Lockhart speaks on the economy and monetary policy, while Dallas Fed President Richard Fisher speaks on “Federal reserve operations and Economic update.”
The Market EUR/USD
• EUR/USD moved lower, but after finding support at the 1.3525 (S1) moved higher to challenge once again the 1.3600 (R1) hurdle. An upward violation of that barrier may target the next resistance at 1.3662 (R2) and the upper boundary of the upward sloping channel. As long as the rate remains within the channel the trend marked by the blue channel remains in effect. Short-term momentum studies lie near their neutral levels, giving no clues for the next directional movement of the price action.
• Support: 1.3525 (S1), 1.3414 (S2), 1.3317 (S3)
• Resistance: 1.3600 (R1), 1.3662 (R2), 1.3731 (R3).
USD/JPY
• USD/JPY moved lower yesterday, breaking below the blue uptrend line. A clear dip below the 101.90 (S1) barrier may target the area between the 101.12 (S2) support and the 38.2% Fibonacci retracement level of the uptrend. Negative divergence is identified between the MACD and the price action, signaling that the momentum of the trend is decelerating. On the other hand, the price found support at the 50-periond moving average, and a rebound at that area might turn the bias back to the upside. On the weekly chart, the subsequent move, upon the exit of a symmetrical triangle remains in effect, thus I would consider any downward movement on shorter-term timeframes as retracements.
• Support: 101.90 (S1), 101.12 (S2), 100.27 (S3).
• Resistance: 103.36 (R1), 105.24 (R2), 106.87 (R3).
EUR/GBP
• EUR/GBP moved higher after rebounding from the lower boundary of the downward sloping channel and the 0.8255 (S1) support level. If the corrective wave continues, I expect it to find resistance at the upper boundary of the channel. The short-term trend remains a downtrend, since the price is printing lower highs and lower lows within the blue downward sloping channel and the 50-period moving average lies below the 200-period moving average.
• Support: 0.8255 (S1), 0.8221 (S2), 0.8081 (S3).
• Resistance: 0.8316 (R1), 0.8385 (R2), 0.8413 (R3).
Gold
• Gold moved significantly higher but the advance was halted by the lower boundary of the triangle. As long as the 1254 (R1) resistance holds, the picture remains neutral and only an upward violation of it would be a reason to assume further advance. Our technical studies’ signals are mixed. Positive divergence is identified between our oscillators and the price action, but a bearish cross of the moving averages is still in effect.
• Support: 1227(S1), 1210 (S2), 1180 (S3).
• Resistance: 1254 (R1), 1269 (R2), 1290 (R3).
Oil
• WTI moved sideways, remaining near its yesterday opening levels. We may experiencing the first stages of a short term peak (higher than the previous one) and as a result a pullback is possible during the day. The RSI remains overbought, and its exit of that zone would confirm the aforementioned scenario. The 50-period moving average lies below the 200-period moving average, but is pointing upwards, thus a bullish cross in the near future would add significance to the establishment of a newborn uptrend.
• Support: 95.36 (S1), 92.00 (S2), 90.10 (S3).
• Resistance: 98.81 (R1), 101.10 (R2), 103.15 (R3).
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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Market Analysis 06/12/2013
Daily Commentary06.12.2013, Time of writing: 03:30 GMT
The big picture The dollar remained mixed against the other major currencies on Thursday. Investors are now waiting for today's U.S. employment report. Strong data will keep alive expectation of Federal Reserve stimulus tapering and may strengthen the USD. Europe’s shared currency held a gain from yesterday and traded at five-week highs in Asia on Friday. Following Thursday's ECB Meeting, ECB President Mario Draghi gave no indication that the ECB would ease policy anytime soon. On the contrary, it was said that that liquidity in the banking system had improved since the last cash injection, or LTRO. Bank of England's monetary policy committee left policy unchanged, as expected. Sterling showed little reaction to the Bank of England's decision. The Canadian dollar gained against most major peers for the first time in five days, rising from a more than three-year low. Canadian building permits increased more than forecast in October. A report to be released is expected to show the economy added jobs for a fourth month in November.
Gold steadied on Friday after choppy trading in the previous session although it is nonetheless headed for a weekly decline. A weaker jobs report would have more of an impact on the price of gold than a stronger one since strong employment data is already priced in. West Texas Intermediate oil headed for the biggest weekly gain in months as the U.S. economy posted the fastest growth since the start of 2012 and crude stockpiles have declined. The immediate focus for oil traders will now be the U.S. dollar and the non-farm payroll figure.
Today another big event: the US employment data for November. Non-farm payrolls are expected to rise 185k, below the 204k rise in October, and the unemployment rate is forecast to fall to 7.2% from 7.3%. This would be below the 3-month moving average of 202k; still, it would probably be high enough to heighten the possibility of the Fed tapering as early as this month's FOMC meeting and hence support the dollar. During the European morning, Swiss CPI for November is expected to be -0.2% mom, a faster pace of decline than -0.1% mom in October. However, this will bring the yoy rate higher at -0.1% vs -0.3%. Germany’s factory orders for October are expected to fall by 1.0% mom, a turnaround from +3.3% mom in September. That could be EUR-negative. In Canada, the unemployment rate for November is estimated to remain unchanged at 6.9%. US personal income and personal spending for October are also coming out. Personal income is expected to rise, but at a slower pace than in September, while personal spending is expected to be up by the same rate as in September. University of Michigan preliminary report on consumer sentiment for December is also expected to rise to 76.0 from 75.1. We have two ECB and two Fed speakers today. ECB’s Nowotny speaks at a press conference on the release of economic forecasts and ECB’s Asmussen speaks at a workshop. Philadelphia Fed president Charles Plosser on “the history of central banking in the United States” and Chicago Fed president Charles Evans speaks at a symposium.
The Market EUR/USD
• EUR/USD moved higher, breaking above the 1.3600 (S1) barrier. The pair found resistance at the 1.3675 (R1) level, near the upper boundary of the upward sloping channel. A pullback seems possible during the day since the RSI found resistance at its 70 level, while the Stochastic indicates overbought conditions with the %K ready to cross below the %D. As long as the rate remains within the channel the trend marked by the blue channel remains in effect.
• Support: 1.3600 (S1), 1.3525 (S2), 1.3414 (S3)
• Resistance: 1.3675 (R1), 1.3731 (R2), 1.3821 (R3).
EUR/JPY
• EUR/JPY remained below the 200% extension level of the downward wave prior to the uptrend. Only a clear break above that barrier would signal the continuation of the existing uptrend. Such a break may have larger bullish implications and target the next resistance of 142.53 (R2), near the 261.8% Fibonacci extension level of the aforementioned bearish wave. The overall trend of the pair remains an uptrend, as confirmed by the blue uptrend line and by the fact that the 50-period moving average remains above the 200-period moving average, supporting the lows of the price action.
• Support: 138.00 (S1), 137.100 (S2), 135.91 (S3).
• Resistance: 139.67 (R1), 142.53 (R2), 146.82 (R3).
GBP/USD
• GBP/USD moved lower, breaking below the blue trend line, and is currently testing the support of 1.6325 (S1) and the 50-period moving average. A clear dip below that area may drive the battle lower, challenging the 1.6260 (S2) hurdle. On the other hand, both momentum studies are declining, confirming the inability of the bulls to push the rate higher. However, the pair is still trading above both moving averages, thus I remain neutral until the aforementioned break occurs.
• Support: 1.6325 (S1), 1.6260 (S2), 1.6147 (S3).
• Resistance: 1.6442 (R1), 1.6536 (R2), 1.6736 (R3).
Gold
• Gold moved lower yesterday and is currently trading slightly below the 1227 (R1) barrier. If the bears manage to push the metal below the previous low of 1210 (S1), I expect them to target the next hurdle at 1180 (S2). Our technical studies’ signals remain mixed. Positive divergence is identified between our oscillators and the price action, but the price lies below both moving averages.
• Support: 1210 (S1), 1180 (S2), 1156 (S3).
• Resistance: 1227 (R1), 1254 (R2), 1269 (R3).
Oil
• WTI continued moving in a consolidative mode. We may experiencing the first stages of a short term peak (higher than the previous one) and as a result a pullback is possible. The RSI exited its overbought territory and the MACD crossed below its trigger line, enhancing the possibilities for the corrective wave. The 50-period moving average remains below the 200-period moving average, but is pointing upwards, thus a bullish cross in the near future would add significance to the establishment of a newborn uptrend.
• Support: 95.36 (S1), 92.00 (S2), 90.10 (S3).
• Resistance: 98.81 (R1), 101.10 (R2), 103.15 (R3).
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Market Analysis 09/12/2013
Daily Commentary 09.12.2013, Time of writing: 03:30 GMT
The big picture To taper, or not to taper…or does it matter?
Following Friday’s better-than-expected US employment data, the debate in the market is whether the Fed will start tapering off its bond purchases earlier – perhaps even at next week’s FOMC meeting – or whether it will be content to wait longer. Investors can be excused if they are unclear about this crucial matter, because everyone is. The headline in the New York Times read, “Fed’s Plan to Taper Stimulus Effort Not Expected Until Next Year,” while the Wall Street Journal proclaimed, “Fed Closes In On Winding Down Bond Purchasing.” And these are written by people with access to FOMC members! I expect the FOMC either to begin tapering next week or at least to give a better signal as to when the tapering may begin. Will Mr. Bernanke want to begin winding down the process that he started, or does he believe it should be left to the next FOMC? We should get some guidance on this crucial matter.
The real question for the markets though is whether tapering matters as much as it did last year. Last May and June, the whole idea was new and many investors were caught out with big positions in the emerging markets. Since then, investors have had half a year to reduce their positions. Moreover, the Fed has made a clear distinction between tapering off their bond purchases and raising interest rates. A change in Fed policy therefore will have less impact now that it would have had six months ago. Friday’s market activity reflected that fact. US ten-year bond yields initially rose 6 bps on the employment report, but by the end of the day they closed 2 bps lower, while stocks held on to solid gains. The dollar too lost most of its gains against the other G10 currencies (the exception there being JPY, which may be affected by rising geopolitical tensions) and gold managed to close slightly higher, all moves that one might not have expected if the likelihood of tapering had increased – as surely it must have.
The dollar did retain much of its gains against EM currencies however, which suggests that while investors may have reduced their risk in that trade, they are still exposed. Thus USD is likely to perform better vs the EM currencies than the G10 currencies as tapering talk heats up. Investors wishing to play the taper should look at those currencies. Meanwhile, within G10 it might be best to avoid the dollar for the time being and instead concentrate on those currencies where a strong trend is still in place, such as GBP and JPY. In that respect, AUD’s recovery bodes well for the commodity currencies, which may benefit if investors now think that tapering is largely discounted and a “risk on” trade begins again.
Today’s market: Comments by Richmond Fed President Lacker, St. Louis Fed President Bullard and Dallas Fed President Fisher are likely to be the main feature of the market today insofar as they give some clues as to FOMC members’ thinking about tapering. Bullard has previously said that policy makers could begin tapering at this month’s meeting. ECB’s Mersch and BoE Governor Mark Carney will also speak today.
As for data, there is a relatively light calendar today. During the European morning Switzerland’s unemployment rate for November is expected to remain unchanged at 3.2%.Germany’s trade balance, current account balance and industrial production, all for October, are coming out. The country’s trade surplus is expected to have declined to EUR 18.3bn from EUR 20.4bn in September and the current account surplus to fall to EUR 17.1bn from EUR 19.7bn. Germany’s industrial production on the other hand is expected to have risen by 0.7% in October, a turnaround from -0.9% in September. In Canada, housing starts are expected at 195.0k in November vs 198.3k in October.
Overnight, Japan’s Tertiary industry index for October is forecast to rise 0.1% mom, a turnaround from -0.2% in September. In China, industrial production for November is expected to rise 10.1%, a slowdown from 10.3% in October and retail sales to be up 13.2% in November vs 13.2 in October. From UK, we get the RICS house price balance for November and from Australia home loans for October are coming out.
As for the rest of the week, on Tuesday, industrial production data are coming out from France, Sweden, Italy and the UK. Italy also publishes its final GDP for Q3 and UK its trade data for October. On Wednesday, the Reserve Bank of New Zealand decides on its official cash rate. As for the indicators, we get Japan’s machinery orders and Germany’s final CPI for November. More CPIs are coming out on Thursday from France, Sweden and Italy. Australia and Sweden release their unemployment rate for November and US its retail sales for the same month. Finally on Friday, Japan’s industrial production and US PPI figures are coming out.
The Market EUR/USD
• EUR/USD moved higher but the advance was stopped by the upper boundary of the upward slopping channel, slightly below the 1.3731 (R1) resistance barrier. A clear violation of that hurdle could trigger extensions towards October’s highs at 1.3821 (R2). However, since the RSI seems ready to cross below its 70 level, I would expect a short-term corrective wave before the bulls prevail again. As long as the rate is printing higher highs and higher lows within the channel and the 50-periond moving average lies above the 200-period moving average, pointing upwards, the uptrend remains in effect.
• Support: 1.3675 (S1), 1.3600 (S2), 1.3525 (S3)
• Resistance: 1.3731 (R1), 1.3821 (R2), 1.3935 (R3).
USD/JPY
• USD/JPY surged on Friday and hit the prior uptrend line, which is now providing resistance. A break above the trend line, followed by a violation of the previous high at 103.36 (R1), would reinforce our short term uptrend. On the other hand, if the bears manage to push the price lower, I expect them to challenge once again the 101.90 (S1) support barrier. On the daily and weekly charts, the subsequent move upon the escape of the symmetrical triangle remains in effect, thus I would consider any downward movements on the shorter time frames as corrective waves of the longer-term uptrend.
• Support: 101.90 (S1), 101.12 (S2), 100.27 (S3).
• Resistance: 103.36 (R1), 105.24 (R2), 106.87 (R3).
EUR/GBP
• EUR/GBP moved significantly higher, breaking the upper boundary of the downward sloping channel and the 0.8346 barrier. At the time of writing, the pair is testing the resistance of 0.8390 (R1). If the longs manage to overcome that obstacle, they may continue pushing the price higher, targeting the area between the 0.8462 (R2) resistance and the 161.8% Fibonacci extension level of the previous bearish wave. The 50-period moving average remains below the 200-period moving average but is pointing upwards, thus a bullish cross in the near future is likely.
• Support: 0.8346 (S1), 0.8320 (S2), 0.8255 (S3).
• Resistance: 0.8390 (R1), 0.8462 (R2), 0.8503 (R3).
Gold
• Gold moved in a narrowed consolidative mode, remaining slightly below the 50-period moving average. If the bears manage to push the metal below the previous low of 1210 (S1), I expect them to target the next hurdle at 1180 (S2). Our technical studies’ signals remain mixed. Positive divergence is identified between our oscillators and the price action, but the price lies below both moving averages.
• Support: 1210 (S1), 1180 (S2), 1156 (S3).
• Resistance: 1254 (R1), 1290 (R2), 1313 (R3).
Oil
• WTI moved slightly higher on Friday. The price is currently trading below the 98.81 (R1) resistance barrier. The RSI remains overbought for an extended period of time, while the MACD crossed below its trigger line, enhancing the possibilities for the corrective wave during the next few days. The 50-period moving average remains below the 200-period moving average, but is pointing upwards, thus a bullish cross in the near future would add significance to the establishment of a newborn uptrend.
• Support: 95.36 (S1), 92.00 (S2), 90.10 (S3).
• Resistance: 98.81 (R1), 101.10 (R2), 103.15 (R3).
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MARKETS SUMMARY
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Market Analysis 10/12/2013
Daily Commentary10.12.2013, Time of writing: 03:30 GMT
The big pictureTapering fully priced in:
The dollar was generally lower against its G10 counterparts Tuesday morning in Europe despite comments from two Fed officials suggesting that tapering is on the way. St. Louis Federal Reserve Bank President James Bullard said there may be a small taper at next week’s meeting, while Dallas Fed President Richard Fisher said the central bank should begin to scale back its bond-buying “at the earliest opportunity.” Richmond Fed President Jeffrey Lacker said in separate remarks that the issue will be on the table at next week’s meeting, but didn’t indicate how he thought the discussion would go. Nonetheless the long-dated Fed Funds futures were unchanged and10-year bond yields were down 1 bps, indicating no change in the market’s perception. Yesterday’s action corroborates the message the market sent after Friday’s non-farm payrolls: tapering is already discounted and won’t have that much impact when it does finally begin. It was particularly noticeable that USD fell against most EM currencies as well as the G10 currencies overnight, indicating that those currencies may have also adjusted somewhat to the inevitability of tapering.
USD gained vs SEK and JPY and eased against NOK, CHF and EUR. The pound was the best performing currency over the last 24 hours, for reasons that are somewhat obscure. On the contrary, Bank of England Gov. Carney repeated his usual comments warning against an early tightening, saying that “if supply responds to recovering demand, unemployment will fall more slowly than otherwise and the point at which we will re-evaluate the stance of monetary policy will come later.” Also it was announced overnight that the Royal Institute of Chartered Surveyors (RICS) house price index rose to 58% in November, the highest level since June 2002, from 57%, but this was below market estimates of 60% and besides, it came out two hours before the pound’s surge. The strong performance of the pound is based on solid fundamentals and with the technical picture also looking bullish, we believe sterling can continue to move higher in the near term.
Several European countries release their industrial production for October. France’s IP is expected to have risen modestly by 0.1% mom in October, a turnaround from -0.5% mom in September, while Italy’s is expected to have risen by 0.2% mom, the same pace as in September. The combination could be mildly EUR-supportive. Sweden’s is forecast to be up +0.9% mom vs unchanged the previous month. UK industrial production is forecast to rise by +0.4% mom. This would be a deceleration from +0.9% mom in September, but show output continuing to expand nonetheless. Also, the UK trade deficit is forecast to have narrowed to GBP 2.8bn from GBP 3.3bn in September. Rising production and a narrowing trade deficit could give GBP a further push upward. In US, the market expects wholesale inventories to be up 0.3% mom in October, a slowdown from +0.4% mom in September. As for the speakers, ECB President Mario Draghi speaks at a conference; he’s usually dovish so his comments could be EUR-negative. Finally, EU finance ministers meet to try to break a deadlock on a euro-area bank-failure authority. Progress there would be seen as EUR-positive, while failure would probably be taken as par for the course.
The Market EUR/USD
• EUR/USD moved higher, breaking the upper boundary of the upward sloping channel and the hurdle at 1.3731. I expect the bulls to extend their move and target October’s highs at 1.3821 (R1). The RSI, although in overbought territory, is now pointing upwards and only a cross below 70 would be a reason to assume a price pullback. The ADX crossed above 25 with +DI lying above –DI, confirming the strength of the current advance.
• Support: 1.3731 (S1), 1.3675 (S2), 1.3600 (S3)
• Resistance: 1.3821 (R1), 1.3935 (R2), 1.4200 (R3).
EUR/JPY
• EUR/JPY moved significantly higher after breaking the 139.67 level, which coincides with the 200% extension level of the downward wave prior to the uptrend. Currently the pair is trading slightly below the 261.8% Fibonacci extension level of the bearish wave. A clear upward violation will drive the price into territory last seen back in September 2008. The pair remains in an uptrend, as confirmed by the blue uptrend line and by the fact that the 50-period moving average remains above the 200-period moving average, supporting the lows of the price.
• Support: 139.67 (S1), 138.00 (S2), 137.100 (S3).
• Resistance: 142.26 (R1), 148.93 (R2), 156.77 (R3).
GBP/USD
• GBP/USD rebounded from the 1.6325 (S2) support barrier and the 50-period moving average and rallied, overcoming the previous high at 1.6442.The first resistance is now identified at 1.6575 (R1). The ADX rebounded from its 25 level and moved higher with +DI crossing above –DI, while the MACD achieved a cross above its trigger line. The 50-period moving lies above the 200-period moving average and completes the bullish picture for cable since it continues to provide reliable support.
• Support: 1.6442 (S1), 1.6325 (S2), 1.6260 (S3).
• Resistance: 1.6575 (R1), 1.6885 (R2), 1.6736 (R3).
Gold
• Gold moved higher yesterday, confirming the positive divergence identified by both our momentum studies and the price action. I would assume a further advance upon the break of the 1254 (R1) resistance barrier. For now, I remain neutral on the metal until we have more clear indications about its next directional movement. On the daily chart, the longer-term downtrend remains in effect.
• Support: 1210 (S1), 1180 (S2), 1156 (S3).
• Resistance: 1254 (R1), 1290 (R2), 1313 (R3).
Oil
• WTI moved sideways once again, remaining between the 95.36 (S1) support and the resistance of 98.81 (R1). If the bulls are strong enough to overcome the 98.81 (R1) resistance barrier, I would expect them to target the next obstacle at 101.10 (R2). The 50-period moving average touched the 200-period moving average, thus a bullish cross in the near future would add significance to the establishment of a newborn uptrend.
• Support: 95.36 (S1), 92.00 (S2), 90.10 (S3).
• Resistance: 98.81 (R1), 101.10 (R2), 103.15 (R3).
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MARKETS SUMMARY
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Market Analysis 11/12/2013
Daily Commentary 11.12.2013, Time of writing: 03:30 GMT
The big picture US Congress reaches a budget agreement!
USD was mixed once again, gaining against SEK, NZD and GBP but declining against five of the other G10 currencies (it was unchanged vs EUR). The biggest decline was vs JPY, as might be expected with not only Tokyo stocks but also Asian stock markets down uniformly. Yet AUD and CAD also gained against the US currency too, indicating that this is more than just risk-off. However the dollar was starting to turn up again in early European trading after US lawmakers reached agreement on a budget deal for the next two years. That eliminates the risk of another government shutdown next month and hence removes some of the risk premium from the USD.
The end of fiscal risk should also make it easier for the Fed to begin tapering off its monthly bond purchases, although that seems to be pretty well discounted by the market already, as we’ve discussed. A poll taken last week by Bloomberg showed 34% of economists surveyed expected the Fed to begin tapering this month, with 26% expecting it at the January meeting and 40% at the March meeting – in other words, 100% expecting it to start by March. So far though that prospect has not been particularly USD-supportive. However I would expect the (relatively) peaceful resolution of this potential flashpoint to be a USD-positive point today and to see the dollar rebound, particularly against JPY. I should caution though that the technicals say otherwise (see below).
As Fed Funds futures remain steady and US bond yields eased further yesterday (10yr yields down 3 bps), the dollar is getting no more interest-rate support. On the other hand, as European banks repay their LTRO funds and move into the market for funding in preparation for the Asset Quality Review (AQR), 3m Euribor continues to fix higher. It hit a 12-month high of 0.26% last night, slightly above the comparable USD rate (0.24%), which makes it possible to put on EUR/USD carry trades. The reluctance of the ECB to take any further action to improve liquidity last week is increasing the pressure, which comes at a particularly unfortunate time as we move into year-end. The pressure on short-end EUR rates is likely to remain at least until the year end and may well support the EUR until that hurdle is over. As the combination of rising rates and a stronger EUR is harmful to the Eurozone economy, I would expect to see the ECB take some action eventually, if nothing else than verbal intervention by ECB Council members. We have to listen closely to what they say about the supply of liquidity.
There are few indicators worth noting today. In the US we only have the weekly MBA mortgage applications. Overnight the Reserve Bank of New Zealand meets. It’s widely expected that the Bank will keep its rate unchanged at 2.50%, so the focus will be on RBNZ Governor Wheeler’s press conference after the decision and what he says about the currency (probably that it’s too high, which is why NZD is lower this morning). We have two speakers during the day. ECB vice president Vitor Constancio speaks at an IMF book presentation and BoE policy maker Martin Weale speaks on “Forward Guidance and its Effects”.
The Market EUR/USD
• EUR/USD moved slightly lower yesterday and is now currently testing the upper boundary of the channel, which is now acting as a support. I still expect the bulls to extend their move and target October’s highs at 1.3821 (R1). However, the MACD crossed below its trigger line while the RSI moved lower and is now testing its 70 level, thus a price pullback within the channel cannot be ruled out. The bias remains to the upside since the pair is printing higher highs and higher lows, thus I consider any possible corrective wave as a renewed buying opportunity.
• Support: 1.3731 (S1), 1.3675 (S2), 1.3600 (S3)
• Resistance: 1.3821 (R1), 1.3935 (R2), 1.4200 (R3).
USD/JPY
USD/JPY moved significantly lower after finding resistance at the prior uptrend line and the 103.36 (R1) resistance barrier. I would start assuming further decline upon a decisive break below the 101.65 (S1) support level, which would signal the completion of a double top reversal formation. At the moment, the rate is trading above both moving averages. A rebound near the area of the 50-period moving average may give the chance to the bulls to challenge one more time the hurdle of 103.36 (R1).
• Support: 101.65 (S1), 101.12 (S2), 100.27 (S3).
• Resistance: 103.36 (R1), 105.24 (R2), 106.87 (R3).
EUR/GBP
• EUR/GBP moved lower after failing for a second time to overcome the 0.8390 (R1) resistance barrier. Both momentum studies confirm the weakness of the price. The MACD, although in a bullish territory, lies below its trigger line, while the RSI exited its overbought zone and is moving lower. If the longs appear stronger in the near future and manage to overcome that obstacle, they may continue pushing the price higher, targeting the area between the 0.8462 (R2) resistance and the 161.8% Fibonacci extension level of the previous bearish wave.
• Support: 0.8346 (S1), 0.8320 (S2), 0.8255 (S3).
• Resistance: 0.8390 (R1), 0.8462 (R2), 0.8503 (R3).
Gold
• Gold surged yesterday, violating the neckline (light blue line) of a possible “complex head and shoulders bottom” formation and breaking above the 1254 barrier. The metal has formed two higher lows and two higher highs, giving us reason to assume that it’s established a new short-term uptrend. The target of the formation is found near the 1290 (R2) level, however a successful “return move” back to the neckline should not be ruled out. Usually such a move confirms the validity of the pattern.
• Support: 1254 (S1), 1227 (S2), 1210 (S3).
• Resistance: 1277 (R1), 1290 (R2), 1313 (R3).
Oil
• WTI moved higher reaching the 98.81 (R1) resistance barrier. An upward penetration of that resistance would have larger bullish implications, targeting the 101.10 (R2) barrier. The 50-period moving average managed to cross above the 200-period moving average, favoring the continuation of the newborn uptrend. My only concern is that RSI found resistance near its 70 level and moved lower, thus a pullback is possible before the bulls prevail again.
• Support: 95.36 (S1), 92.00 (S2), 90.10 (S3).
• Resistance: 98.81 (R1), 101.10 (R2), 103.15 (R3).
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Market Analysis 12/12/2013
Daily Commentary 12.12.2013, Time of writing: 03:30 GMT
The big picture The action was down under this morning as the Reserve Bank of New Zealand (RBNZ) signaled it will start raising rates in the first half of next year and Australia’s unemployment rate rose to 5.8% in November from 5.7% in October. The RBNZ said that given the outlook for faster inflation, “it is becoming unnecessary to maintain the current degree of monetary stimulus” and that “the bank will increase the official cash rate as needed in order to keep future average inflation near the 2 percent target midpoint.” This was a more specific statement than after the last meeting in October, when Gov. Wheeler said that increases “will likely be required” in 2014. The market is now discounting about 100 bps of tightening next year. Nonetheless NZD/USD was virtually unchanged from Wednesday’s European opening – it came off during the European day yesterday and rebounded during New York and Asian trading to trade unchanged. New Zealand is likely to be the first of the G10 countries to raise rates. Although that likelihood is already in the price, given the likelihood that disinflation continues in the other major countries and that central banks elsewhere keep rates lower for longer than currently anticipated, I see room for further appreciation of the NZD. On the other hand, AUD fell continually yesterday except for a few seconds following the employment data. The rise in unemployment was as expected while the change in employment beat estimates – 21k jobs were created in November, up from 1.1k in October and double estimates of 10k. The news initially send AUD up sharply, as one might expect, but it hit the 0.9080 resistance from a previous low and fell back in minutes. That suggests to me the depth of negative sentiment for the AUD.
The other main theme in the market was news that President Obama is likely to nominate former Israeli central bank Governor Stanley Fischer to take Janet Yellen’s place as Vice Chair at the Fed, the #2 position there. This would solve one of the perceived problems with Ms. Yellen’s candidacy, namely that she does not have enough international experience or experience handling financial crises. Mr. Fischer has a vast array of contacts in the international banking community (ECB President Draghi was a former student of his when he was teaching at MIT), while as the #2 official at the IMF in the 1990s, he spent several years managing the Fund’s response to crises in Russia, Asia and Latin America. However Mr. Fischer is known to dislike forward guidance and so his nomination could prove to be a challenge to Ms. Yellen and the current policy framework. “You can’t expect the Fed to spell out what it’s going to do,” Mr. Fischer said in September. “Why? Because it doesn’t know…We don’t know what we’ll be doing a year from now. It’s a mistake to try and get too precise.”
As a result, US interest rates went higher (the far Fed Funds futures +1 bp, 10yr yields +5 bps), equities lower (S&P 500 -1.1%) and the dollar generally declined. Apparently the prospect of policy disunity trumps the prospect of higher yields. Either that, or (more likely) people just want some excuse to sell dollars.
I think Mr. Fischer would be likely to adapt to the prevailing philosophy of the Fed. He has previously stated his approval of the Fed’s extraordinary measures, such as quantitative easing. "They appear to be effective and they essentially do that by working off either the provision of liquidity in markets where liquidity has effectively dried up, or by changing interest rates other than the central bank interest rate," he said last month. Fischer cannot easily be characterized as a dove or a hawk. Despite a focus on fighting inflation, he cut rates along with other major central banks in 2008 in an effort to head off the effects of the global crisis despite relatively high domestic inflation. He also went against his own policy of staying out of financial markets by intervening in the FX market to weaken the shekel and help local exporters. On the other hand, he was among the first to raise interest rates just a year after cutting them (Nov. 2009). As a result, Israel escaped the worst effects of the crisis and maintained a relatively healthy growth rate, dipping only briefly into recession. During his tenure at the Bank of Israel, the shekel appreciated by 16% on a real effective exchange rate basis and inflation averaged 2.5% yoy, far below the 4.8% in the preceding 10 years.
In my view, his nomination should be seen as providing a superb management team at the Fed, which should be USD-positive. Furthermore, less forward guidance should in fact be good for the dollar as it’s usually used to dampen down expectations of rate hikes.
Following Germany’s release yesterday of its final CPI for November, France, Italy and Sweden take their turn today. French CPI came out as expected, unchanged mom in November vs a 0.1% decline in October. The forecast of Italy’s final CPI for the month is the same as the initial estimate at +0.6% yoy. Sweden’s CPI is also expected to have remained unchanged in November mom vs -0.2% in October. This will give a positive sign to the yoy rate. (+0.2% vs -0.1%). We also have the Swiss National bank meeting. The central bank is expected to keep its target for 3m CHF LIBOR at 0.00% and reaffirm the EUR/CHF floor at 1.20 CHF. These figures are widely expected and would probably have no impact on CHF, which is already hitting a 2013 high vs USD. SNB president Jordan holds a press conference after the meeting. Eurozone’s industrial production is estimated to have risen 0.3% mom in October, a turnaround from -0.5% in September.
Later in the day, US retail sales for November are expected to have risen 0.6% mom, an acceleration from +0.4% in October. The closely watched retail sales excluding autos and gasoline are expected to rise 0.3%, the same rate as in October. Weekly jobless claims for Dec 7 are forecast to rise to 320k from 298k, which could be a USD-negative factor for the market.
Elsewhere, Canada’s new housing price index is expected to rise 0.1% mom in October vs an unchanged figure in September.
We have five speakers today. In addition to SNB President Jordan, ECB president Mario Draghi speaks in European parliament debate on ECB’s annual report, ECB’s governing council member Erkki Liikanen speaks at a Bank of Finland quarterly press briefing and ECB’ Asmussen speaks at a press conference. Finally, Bank of Canada Governor Poloz speaks on “Monetary policy and risk management”.
The Market EUR/USD
• EUR/USD continued moving higher on Wednesday, getting closer towards October’s highs at 1.3821(R1). In my view, we may experience some consolidation near those highs. If the longs manage to win the battle and overcome the hurdle of 1.3821 (R1), I expect them to target the 1.3935 (R2) barrier. The bias remains to the upside since traders manage to maintain the rate above the upper boundary of the upward sloping channel and the 50-period moving average remains above the 200-period moving average. On the weekly chart, the 50-week moving average seems ready to cross above the 200-week moving average, which is often a bullish sign.
• Support: 1.3731 (S1), 1.3675 (S2), 1.3600 (S3)
• Resistance: 1.3821 (R1), 1.3935 (R2), 1.4200 (R3).
EUR/JPY
• EUR/JPY is consolidating slightly above the blue uptrend line, below the 261.8% Fibonacci extension level of the downward wave prior to the uptrend. A clear break above that level will drive the price into territory last seen back in September 2008. The next resistance barrier is found on the weekly chart at 148.93 (R2). The pair remains in an uptrend, as confirmed by the blue uptrend line and by the fact that the 50-period moving average remains above the 200-period moving average, supporting the lows of the price.
• Support: 139.67 (S1), 138.00 (S2), 137.100 (S3).
• Resistance: 142.26 (R1), 148.93 (R2), 156.77 (R3).
GBP/USD
• GBP/USD moved lower and at the time of writing is testing the blue uptrend line near the reading of the 50-period moving average. A break below the trend line followed by a dip below the support of 1.6325 (S1) may turn the short-term bias to the downside. The weakness of the rate is also indicated by the negative divergence between the MACD and the price action. However, since the pair has not violated the blue trend line yet, technically the uptrend remains in effect for now.
• Support: 1.6325 (S1), 1.6260 (S2), 1.6147 (S3).
• Resistance: 1.6465 (R1), 1.6575 (R2), 1.6736 (R3).
Gold
• Gold moved lower after hitting the 38.2% Fibonacci retracement level of the prevailing downtrend. If the metal rebounds at the area between the neckline (light-blue line) and the lower boundary of the channel, it would confirm the validity of the “complex head and shoulders bottom” formation mentioned in previous comments. On the other hand, further decline will signal that the recent advance was just a 38.2% retracement of the prior downtrend.
• Support: 1251 (S1), 1227 (S2), 1210 (S3).
• Resistance: 1277 (R1), 1290 (R2), 1313 (R3).
Oil
• WTI moved lower, confirming my expectations of a pullback. Both momentum studies follow downward paths and as a result I would expect further retracement or consolidation before the bulls prevail again. As long as the 50 period moving average remains above the 200-period moving average and as long as the previous low at 92.00 (S2) holds, the possibility that the price will form a higher low is still in the game.
• Support: 95.36 (S1), 92.00 (S2), 90.10 (S3).
• Resistance: 98.81 (R1), 101.10 (R2), 103.15 (R3).
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Market Analysis 13/12/2013
Daily Commentary13.12.2013, Time of writing: 03:30 GMT
The big picture Unmitigated tapering = stronger USD The dollar gained all around, rising against all its G10 counterparts and most EM currencies. The US government budget deal has taken some of the fiscal risk out of USD and increased the likelihood of the Fed starting to “taper” off its extraordinary bond purchases at next week’s FOMC meeting. Solid retail sales for November also helped support the idea of Fed action next week. Meanwhile, the market is beginning to think the Fed is less likely to take other, technical measures at the same time to offset the impact of the tapering, such as reducing the amount of interest paid on reserves. The absence of such measures would tend to tighten monetary conditions more than had been expected. Hence the implied interest rate on the longest Fed Funds futures rose 4 bps, 10-year yields were up 2 bps and the dollar gained.
USD was particularly strong against JPY and AUD. The yen weakened on expectations of greater capital outflows from Japan’s Government Pension Investment Fund. Takatoshi Ito, chairman of a group advising Japanese lawmakers on pension allocations, told a government committee that a new board of directors should take charge of decision-making and the law governing the fund must be changed if GPIF is unable to overhaul its leadership itself. This has increased expectations of further portfolio shifts out of Japanese Government Bonds and into foreign assets from this JPY 124tn fund, the largest such fund in the world. That would not only increase the outflow of funds from Japan (obviously) but also reduce domestic purchases of JGBs, which means either interest rates go up – perhaps starting the death spiral of the Japanese government’s finances – or, more likely, forces the Bank of Japan to take up the slack with further purchases = greater QE = weaker yen. JPY was the weakest G10 currency this year and I expect it to repeat that performance next year as the hopes about “Abenomics” give way to reality and the country’s massive debt and intractable economic problems come into sharper focus once again.
AUD was weak on continued fallout from the poor reaction to yesterday’s better-than-expected employment data and a newspaper headline that read, “We need a dollar closer to US85¢: Stevens” (referring to Reserve Bank of Australia Gov. Stevens). The full story was less strident than the headline, though. It read:
He said with the falling terms of trade, he expects the Australian dollar’s natural level to be lower than its current rate, which was US90.24¢ on Thursday. “I thought 85¢ would be closer to the mark than 95¢ ... but really, I don’t think we can be that precise.” “I just think that if things over the medium term evolve as we’re presently assuming – and I think it’s reasonable to make these assumptions – it’s going to be surprising if a nine at the front is the right number,” he said.
AUD got no boost even when the full story became known. It’s clear sentiment is against AUD and I would expect that Gov. Stevens will eventually get his wish.
A quiet Friday ahead of us with no major European indicators. There are two major ECB speakers and one BoE speaker today. ECB’s chief economist Praet speaks on “The role of the ECB in times of crisis,” while ECB Board Member Coeure and BoE Chief Economist Dale will also speak. In the US, the PPI for November will be announced. The headline figure is estimated to see no change on a mom basis vs a 0.2% mom decline in October, while the core PPI -- excluding food and energy – is forecast to rise by 0.1% mom, a slowdown from +0.2% mom in the previous month.
The Market EUR/USD
• EUR/USD moved lower yesterday, but the decline stopped slightly above the 1.3731 (S1) support barrier. If the pair rebounds near that area I would expect the longs to make another attempt to reach October’s highs at 1.3821(R1). On the other hand, a break below that support level may signal the continuation of the pullback. Our momentum studies do not give a firm indication either way, since the MACD lies below its trigger line while the stochastic seems ready to exit its oversold zone. As long as the pair is printing higher highs and higher lows, I would consider any downward retracement as a renewed buying opportunity.
• Support: 1.3731 (S1), 1.3675 (S2), 1.3600 (S3).
• Resistance: 1.3821 (R1), 1.3935 (R2), 1.4200 (R3).
USD/JPY
• USD/JPY moved significantly higher, violating the 103.36 barrier. If the bulls manage to maintain the rate above that level, they may trigger extensions towards the resistance of 105.24 (R1), near the 423.6% Fibonacci extension level of the 17th -25th Oct. downward wave. Short-term studies favor further advance. The slope of the RSI is to the upside, while the MACD crossed above its trigger line in a bullish territory. The price continues to move in an uptrend, since is trading above the blue support line and above both moving averages. On the daily and weekly charts, the subsequent move upon the escape of the symmetrical triangle remains in effect.
• Support: 103.36 (S1), 102.13 (S2), 101.12 (S3).
• Resistance: 105.24 (R1), 106.87 (R2), 109.00 (R3).
EUR/GBP
• EUR/GBP managed to overcome the hurdle of 0.8390 (S1). Currently the price is trading between that level and resistance at 0.8431 (R1). A clear violation of the 0.8431 (R1) level will bring the pair one step closer to the area between the 0.8462 (R2) and the 161.8% Fibonacci extension level of the prior bearish wave. The 50-period moving average lies below the 200-period moving average but is pointing upwards, thus a bullish cross in the near future will increase the possibilities for further advance.
• Support: 0.8390 (S1), 0.8346 (S2), 0.8320 (S3).
• Resistance: 0.8431 (R1), 0.8462 (R2), 0.8503 (R3).
Gold
• Gold fell sharply on Thursday, breaking below the lower boundary of the blue upward sloping channel. A clear violation of the low at 1210 (S2) may confirm that the recent advance was just a correction at the 38.2% Fibonacci retracement level of the prevailing downtrend and may turn the bias to the downside again. Since the metal is not in a trending phase, I remain neutral for now until we have a clearer picture.
• Support: 1224 (S1), 1210 (S2), 1180 (S3).
• Resistance: 1251 (R1), 1268 (R2), 1290 (R3).
Oil
• WTI moved in a consolidative mode, remaining near the levels we left it yesterday. Both momentum studies follow downward paths and as a result I would expect further retracement or consolidation before the bulls prevail again. As long as the 50 period moving average remains above the 200-period moving average and as long as the previous low at 92.00 (S2) holds, there’s still a possibility that the price will form a higher low.
• Support: 97.00 (S1), 95.36 (S2), 92.00 (S3).
• Resistance: 98.81 (R1), 101.10 (R2), 103.15 (R3).
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Market Analysis 16/12/2013
Daily Commentary 16.12.2013, Time of writing: 03:30 GMT
The big picture Will they or won’t they? This week will be dominated by the Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday. A Bloomberg poll taken 10 days ago showed that 34% of respondents, or about one-third, thought that the Fed would begin tapering off its $85bn-a-month bond purchases at this week’s meeting. (Twenty-six percent said in January and the rest said in March.) Back in June, Fed Chairman Bernanke in June set out a three-part test -- based on employment, growth and inflation -- for tapering. He said the FOMC wants to see progress in the job market, supported by improving economic activity and an inflation rate rising toward its 2% target. “If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year,” Mr. Bernanke said.
Recent data show progress on the first two criteria, but not on the third. The unemployment rate has come down from 7.6% to 7.0% while non-farm payrolls have risen by around 200k for three out of the last four months. The ISM manufacturing index has risen from 50.9 in June to 57.3, while GDP growth has accelerated from 2.5% to 3.6%. But the Fed’s preferred inflation indicator, the core personal consumption expenditure index, remains stuck at around 1.1% yoy, around half the Fed’s target, while the rise in the CPI has slowed from 1.8% to 1.0%. So there is bound to be considerable debate at the FOMC meeting. My personal view is that they will decide to go ahead and that this will prove positive for the dollar, but it’s clear that reasonable people can disagree. One reason I think this is because of a criterion that Mr. Bernanke didn’t specify: US politics. Back in September, the FOMC was apparently about to pull the trigger but held back because of the looming US government shut down. Now the budget negotiations are going smoothly and that fiscal risk is gone. If the FOMC wanted to start in September, well then, the economics are only better now, so they might as well go ahead, in my view.
If they do taper, I believe they are likely to try to soften the blow by firming up their “forward guidance.” Mr. Bernanke gave a hint of this in a speech he made back in mid-November, when he said “the target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after the unemployment threshold is crossed and at least until the preponderance of the data supports the beginning of the removal of policy accommodation.” The “unemployment threshold” refers to the Fed’s promise to keep rates at their current level “at least as long as the unemployment rate remains above 6 ½%,” which at the rate things are going, is likely to be reached towards the end of next year. We could see the Fed insert a comment like that into the statement following the meeting. There has also apparently been some discussion of reducing the interest that the Fed pays on reserves in order to encourage banks to make more loans.
Overnight, Japan’s tankan survey for Q4 was better than expected, with the large manufacturers’ index rising to 16 vs a forecast of 15. But while the current picture was better than expected, the forecasts for the next quarter were mostly below expectations, suggesting pessimism about the future (perhaps because of the looming sales tax hike?). Also large manufacturers reduced their projections for capital spending. The news sent the stock market down and USD/JPY down with it.
Also overnight, the HSBC/Markit China manufacturing PMI unexpectedly fell to 50.5 from 50.8. The market had been looking for a small rise to 50.9. AUD nonetheless managed to gain on an overall weak USD, although it fell relative to NZD.
The day continues with the preliminary manufacturing and service sector PMIs from France, Germany, and Eurozone as a whole. France’s preliminary manufacturing PMI for the month is estimated at 49.0 vs 48.4 in November, still below the crucial 50 line but at least higher. Germany’s preliminary figure is expected to rise to 53.0 from 52.7, while the preliminary number for Eurozone as a whole is forecast to improve to 51.8 from 51.6. That could prove positive for the euro. Eurozone’s trade surplus is expected to have risen to EUR 17.0bn in October from EUR 13.1bn (NSA). In US, the Empire State manufacturing survey is expected to rise to 5.00 in December from -2.21 in November. US industrial production for November is also estimated to show a rise of 0.6% mom, a turnaround from -0.1% in October. News like that, showing a continued improvement in the US economy, would probably be USD-positive, as were similar indicators last week. We have one speaker on Monday. ECB’s President Draghi speaks to European parliament in Brussels.
The Market EUR/USD
• EUR/USD rebounded at the 1.3710 (S1) support barrier, near the 50-period moving average, and moved higher. I expect the bulls to make another attempt to reach October’s highs at 1.3830 (R1). The stochastic oscillator exited its oversold zone with the %K lying above the %D, increasing the possibilities for further advance. As long as the pair is printing higher highs and higher lows of the same degree and the 50-period moving average remains above the 200-period moving average, the uptrend remains in effect, in my view.
• Support: 1.3710 (S1), 1.3655 (S2), 1.3600 (S3).
• Resistance: 1.3830 (R1), 1.3935 (R2), 1.4200 (R3).
USD/JPY
• USD/JPY moved lower on Friday, after finding resistance at the 103.90 (R1) level. In early European trading the pair is testing the 50-period moving average, slightly above the blue uptrend line. A rebound near the area of the trend line and the 102.14 (S1) support barrier may target once again the previous high at 103.90 (R1). On the other hand, a dip below the 102.14 (S1) support would be a reason to assume bearish extensions. Negative divergence is identified between the MACD and the price action, indicating that the momentum of the short-term trend is weakening. Nonetheless, the price continues to move in an uptrend, since is trading above the blue support line On the daily and weekly charts, the subsequent move upon the escape of the symmetrical triangle remains in effect, thus I would consider any bearish waves on the shorter time-frames as retracements of the longer term upward direction.
• Support: 102.14 (S1), 101.12 (S2), 100.40 (S3).
• Resistance: 103.90 (R1), 105.24 (R2), 106.87 (R3).
EUR/GBP
• EUR/GBP moved higher and managed to overcome the hurdle of 0.8430. Currently the price is heading towards the area between the 0.8462 (R2) and the 161.8% Fibonacci extension level of the prior bearish wave. An upward escape of that area may trigger further bullish extensions towards the 200% extension level of the aforementioned downward wave. The 50-period moving average touched the 200-period moving average, thus a bullish cross in the near future will increase the possibilities for further advance.
• Support: 0.8430 (S1), 0.8390 (S2), 0.8350 (S3).
• Resistance: 0.8462 (R1), 0.8503 (R2), 0.8575 (R3).
Gold
• Gold moved slightly higher, remaining above the 1224 (S1) support barrier. Since the metal is not in a trending phase, I remain neutral for now until we have a clearer picture. A clear violation of the low at 1210 (S2) may confirm that the recent advance was just a correction at the 38.2% Fibonacci retracement level of the prevailing downtrend and may turn the bias to the downside again.
• Support: 1224 (S1), 1210 (S2), 1180 (S3).
• Resistance: 1251 (R1), 1267 (R2), 1290 (R3).
Oil
• WTI moved lower, confirming my suspicions for further retracement, and broke below the 97.00 hurdle. As long as the 50-period moving average remains above the 200-period moving average and as long as the previous low at 92.00 (S2) holds, it’s still possible for the price to form a higher low.
• Support: 95.36 (S1), 92.00 (S2), 90.00 (S3).
• Resistance: 97.00 (R1), 98.81 (R2), 101.10 (R3).
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Market Analysis 17/12/2013
Daily Commentary 17.12.2013, Time of writing: 03:30 GMT
The big picture Countdown to the Fed The dollar was mixed this morning, gaining vs AUD and JPY but lower against GBP, EUR, CHF and especially NOK, which held onto much of its gains from yesterday. Better-than-expected US industrial production outweighed a disappointing Empire State manufacturing survey. Although much of the gain in IP was due to a large increase in output by utilities, which is simply a function of colder-than-usual weather, manufacturing production was also up a solid 0.6% mom and capacity utilization hit the highest level since June 2008. That’s a positive sign for future capital spending, as well as a guard against deflation. In addition, the US Treasury International Capital (TIC) data on flows into the US showed large rise in inflows in October, the highest since Nov 2008. Long-term flows, including foreign purchases of equities, are starting to recover, which bodes well for the USD longer-term.
On the other hand, the euro continues to be supported by banks returning money to the European Central Bank (ECB) ahead of the Asset Quality Review (AQR) exercise next year. Coming at the same time as the usual end-of-year squeeze on the money markets, these repayments are pushing short-term euro interest rates higher and thereby supporting the euro. However this factor will finish at the end of the year, while the flows into the US seem likely to continue. That’s one reason why I expect EUR/USD to turn around next year.
The dollar’s rise vs AUD comes after the minutes of the recent RBA meeting showed that policymakers retain the option of cutting rates further if necessary, suggesting continued AUD weakness. Meanwhile in New Zealand, a rising budget surplus is signs of a healthy economy, showing the continued divergence of the two economies. AUD/NZD seems likely to continue to decline, in my view. That’s because while the market is currently forecasting an eventual rise in AUD rates parallel to that of NZD rates – just a little bit later (see graph) – there’s a possibility that this rise is either delayed or even turns around to expectations of a cut. It’s that possibility that seem to me likely to undermine AUD further.
Today we have November CPI and PPI numbers from the UK. The CPI is expected to be unchanged at 2.2% yoy. That’s close enough to the Bank of England’s 2% target that it could hurt sterling, in that it suggests the Bank of England can safely leave interest rates lower for longer without any fear of inflation. Also, Bank of England Gov. Carney testifies to the House of Lords economic affairs committee. The ZEW survey for Germany is expected to show a rise in both the current situation and expectations, which could provide ammunition for another attempt to break through 1.3800 in EUR/USD. The US CPI for November will be closely watched; headline CPI is expected to rise to 1.3% yoy from 1.0% while core CPI is expected to remain at 1.7% yoy. A dip in inflation would be seen as making tapering less likely, because the Fed has set three criteria for tapering: employment, growth and inflation. Employment and growth have been strong enough recently but inflation remains far below their target, and a further decline could strengthen the hand of those who prefer to wait, so it would be USD-negative. On the other hand, a higher-than-expected CPI would increase the odds of tapering starting tomorrow even higher. Finally, the US National Association of Home Builders’ housing market index for December is expected to rise 1 point to 55, which would be positive for the dollar. We could see a repeat of yesterday: strong euro during the European day, strong USD during the US day.
The Market EUR/USD
• EUR/USD moved slightly higher on Monday, remaining between the support of 1.3710 (S1) and October’s highs at 1.3830 (R1). I still believe that the longs may try to challenge once again the 1.3830 (R1) hurdle. Only a dip below the 1.3710 (S1) support would be a reason to assume bearish extensions. As long as the pair is printing higher highs and higher lows of the same degree and is trading above both moving averages, the uptrend remains in effect.
• Support: 1.3710 (S1), 1.3655 (S2), 1.3600 (S3).
• Resistance: 1.3830 (R1), 1.3935 (R2), 1.4200 (R3).
EUR/JPY
• EUR/JPY moved in a consolidative mode, riding the blue support line. A break below that support line, followed by a dip below the 140.88 (S1) support level, would have larger bearish implications. On the other hand, we need to see the market overcome the 142.80 (R1) obstacle to ensure the continuation of the uptrend. Negative divergence is identified between both momentum studies and the price action, indicating that the trend’s momentum is decelerating. The overall trend of the pair remains to the upside at the moment, as confirmed by the blue uptrend line and by the fact that the 50-period moving average remains above the 200-period moving average, supporting the lows of the price.
• Support: 140.88 (S1), 139.67 (S2), 138.00 (S3).
• Resistance: 142.80 (R1), 146.85 (R2), 148.75 (R3).
GBP/USD
• GBP/USD violated the blue uptrend line, confirming its weakness identified by the negative divergence between the MACD and the price action. Currently the pair is trading within the purple downward sloping channel. If the bears manage to overcome the strong hurdle of 1.6260 (S1), I would expect them to target the area between the 1.6140 (S2) support and the 50% Fibonacci retracement level of the prevailing uptrend. The rate lies below the 50-period moving average, but remains above the 200-period moving average, thus I consider the recent decline as a retracement of the prior uptrend, at the moment.
• Support: 1.6260 (S1), 1.6140 (S2), 1.6087 (S3).
• Resistance: 1.6347 (R1), 1.6415 (R2), 1.6464 (R3).
Gold
• Gold moved slightly higher while remaining between the 1224 (S1) support and the 1251 (R1) resistance barrier. Since the metal is not in a trending phase and continues moving sideways, I remain neutral for now until we have a clearer picture. A clear violation of the low at 1210 (S2) may confirm that the recent advance was just a correction at the 38.2% Fibonacci retracement level of the prevailing downtrend and could turn the bias to the downside again.
• Support: 1224 (S1), 1210 (S2), 1180 (S3).
• Resistance: 1251 (R1), 1267 (R2), 1290 (R3).
Oil
• WTI rebounded near the 200-period moving average and moved higher, breaking above the barrier of 97.00. If the bulls manage to maintain oil above the support of 97.00 (S1), I would expect them to drive the battle higher and challenge once again the resistance of 98.81 (R1). A violation of that resistance may signal the continuation of the uptrend and trigger bullish extensions towards the next hurdle at 101.10 (R2). As long as the 50 period moving average remains above the 200-period moving average and as long as WTI remains within the purple upward sloping channel, I consider the bias to the upside.
• Support: 97.00 (S1), 95.36 (S2), 92.00 (S3).
• Resistance: 98.81 (R1), 101.10 (R2), 103.15 (R3).
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Market Analysis 18/12/2013
Daily Commentary 18.12.2013, Time of writing: 03:30 GMT
The big picture Risk of too-low inflation dominates FX trading: The market Tuesday was remarkable for its uniform theme: the risk of too-low inflation. First the Riksbank cut its key rate for the first time in a year in response to too-low inflation and signalled that it probably wouldn’t start raising rates until the start of 2015, a quarter later than previously stated. The move came in response to two consecutive months of month-on-month declines in prices. Then the UK announced a lower-than-expected CPI for November. Producer prices were also below estimate, showing diminishing upstream inflationary pressures as well. Next was a surprise downward revision to the EU core CPI for November. On the other hand, US CPI accelerated slightly while core inflation remained stable at +1.7%, close to the Fed’s 2.0% target (although admittedly that target uses a different measure of inflation). This suggests that the US does not face deflationary pressures, unlike Europe, and supported the dollar by making it more likely that the FOMC would decide to begin tapering today.
We saw the impact of the problem of too-low inflation in the surprise ECB rate cut in November. It appears that the trend has by no means dissipated. On the contrary, it seems to be spreading and intensifying. I believe this is likely to be one of the major market themes for 2014. It’s particularly important as countries struggle to dig themselves out from under a mountain of debt, because deflation increases the real burden of debt and further depresses an economy. How central banks that are already hitting up against the zero bound for nominal interest rates deal with this problem will be one of the major issues facing the market. The different trend in prices between the US and Europe and the resulting different bias in central bank policy is likely to be one factor that helps the dollar to recovery vs the euro in 2014, in my view.
Today the feature will of course be the FOMC’s decision on monetary policy. A Bloomberg poll of 68 economists shows that most do not expect the Fed to begin tapering off its $85bn in monthly bond purchases today. I think that they will, although of course the decision is finely balanced. If they do decide not to taper, then I would expect the dollar to sell off, as there are still some people who do expect it to start today. The high-beta currencies that tend to move along with stock markets (AUD, CAD, NZD) would probably tend to do best on this scenario, while JPY might underperform as Tokyo stocks rally. On the other hand, the most bullish outcome for the dollar would be that they start to taper and make no attempt to soften the blow through additional forward guidance or other measures, such as reducing the amount of interest that they pay on reserves. That would probably hurt the EM currencies that have performed well recently, such as HUF, INR and KRW. BRL, ZAR and TRY could also suffer as currencies with large current account deficits. Combinations between those extremes – start tapering but with various additional measures on interest rates – would result in a more modest USD rally.
Today’s indicators may not mean much as the market awaits the Fed. They started off with Japan’s seasonally adjusted trade deficit widening further in November as import growth exceeded export growth, but USD/JPY was virtually unchanged. Next the ANZ Business Confidence survey rose in December, but NZD/USD weakened nonetheless. During the European day, UK unemployment is expected to stay unchanged at 7.6% in October. This is a key indicator for Britain, as the Bank of England has pledged to keep rates stable at least until unemployment gets down to 7%, so any unexpected move in the rate is bound to affect sterling. Also the Bank of England will release the minutes of its recent Monetary Policy Committee meeting. In the US, housing starts for November are expected to be up 954k in November. This figure hasn’t been released since August so it’ll be hard to make sense out of it. Building permits in November are expected at 990k, down from 1039k in October.
The Market EUR/USD
• EUR/USD consolidated on Tuesday, remaining between the support of 1.3710 (S1) and the key resistance of 1.3800 (R1) which coincides with the 200% extension level of the decline prior to the uptrend. An upward escape of the resistance area between 1.3800 (R1) and October’s highs at 1.3830 (R2), would signal the continuation of the uptrend. Only a dip below 1.3710 (S1) would be a reason to assume bearish extensions. As long as the pair is forming higher peaks and higher troughs of the same degree and is trading above both moving averages, the uptrend remains in effect.
• Support: 1.3710 (S1), 1.3655 (S2), 1.3600 (S3).
• Resistance: 1.3800 (R1), 1.3830 (R2), 1.935 (R3).
USD/JPY
• USD/JPY rebounded near the blue support line and the 50-period moving average. If the longs are strong enough to push the price higher, they may drive the rate for another test at the 103.90 (R1) resistance barrier. On the other hand, a dip below 102.14 (S1) would have bearish implications targeting the support level at 101.12 (S2). The negative divergence identified between the MACD and the price action remains in effect, indicating that the momentum of the short-term trend is weakening. On the daily and weekly charts, the subsequent move upon the escape of the symmetrical triangle remains in effect, thus I would consider any downward movements on the shorter time-frames as retracements of the longer term upward direction.
• Support: 102.14 (S1), 101.12 (S2), 100.40 (S3).
• Resistance: 103.90 (R1), 105.24 (R2), 106.87 (R3).
EUR/GBP
• EUR/GBP moved higher and managed to reach the 0.8462 (R1) resistance level. An upward escape of the area between that hurdle and the 161.8% Fibonacci extension level of the 26th Nov - 2nd Dec bearish wave may trigger further bullish extensions towards the 200% extension level of the aforementioned decline. The 50-period moving average crossed above the 200-period moving average, increasing the probabilities for further advance. My only concern is that the RSI found resistance at its 70 level and moved lower, thus I would not exclude a price pullback before the bulls prevail again.
• Support: 0.8430 (S1), 0.8390 (S2), 0.8350 (S3).
• Resistance: 0.8462 (R1), 0.8503 (R2), 0.8575 (R3).
Gold
• Gold moved lower yesterday but remained between the 1224 (S1) support and the resistance of 1251 (R1). Since the metal is not in a trending phase and continues moving in a sideways mode, I remain neutral until we have a clearer picture. A clear violation of the low at 1210 (S2) may confirm that the 4th-10th Dec advance was just a correction at the 38.2% Fibonacci retracement level of the prevailing downtrend and may turn the bias to the downside again.
• Support: 1224 (S1), 1210 (S2), 1180 (S3).
• Resistance: 1251 (R1), 1267 (R2), 1290 (R3).
Oil
• WTI also moved in a consolidative mode, remaining above the 97.00 (S1) support barrier. I would expect the bulls to drive the battle higher and challenge once again the resistance of 98.81 (R1). A violation of that resistance may signal the continuation of the uptrend and trigger bullish extensions towards the next hurdle at 101.10 (R2). Both momentum studies lie near their neutral levels, giving no clues for the next directional movement of the price. Nonetheless, as long as the 50 period moving average remains above the 200-period moving average and as long as WTI remains within the purple upward sloping channel, I consider the bias to the upside.
• Support: 97.00 (S1), 95.36 (S2), 92.00 (S3).
• Resistance: 98.81 (R1), 101.10 (R2), 103.15 (R3).
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