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Market Analysis 16/01/2014
Daily Commentary 16.01.2014, Time of writing: 03:30 GMT
The Big Picture The dollar’s on a roll
USD continued to gain Wednesday, continuing the pattern that we’ve seen in recent months of disappointing non-farm payrolls having little lasting effect on the dollar. A much better-than-expected result from the Empire State manufacturing survey and some acceleration in US producer prices sent US bond yields up another 2 bps and the implied interest rates on 2016 Fed Funds futures 5.5 bps. The Beige Book too had some positive things to say – eight out of the 12 Fed districts reported wage increases in the last year, up from only three districts in the previous report. Rising yields are once again supporting USD, and yet not hurting the stock market – the S&P 500 finally managed to close in positive territory for 2014 (albeit just by 0.02 point).
I expect the USD to continue to firm into the FOMC meeting later this month. Even Chicago Fed President Evans, a noted dove, said yesterday that “it makes a lot of sense” to reduce the bond purchases and that the Fed’s plan “seems quite reasonable.” However the market seems to be still discounting the possibility that the Fed delays tapering further. US 10-year Treasury yields are still 8 bps below where they were before the payrolls figure and the implied yield on long-dated Fed Funds futures 5 to 8 bps lower. The market still has further to go to get back to where it was before that figure; the dollar can still rally further.
The outlier yesterday was the CAD, which strengthened vs USD on reports that the Bank of Canada was less willing to cut rates as the CAD weakened. A Reuters poll out yesterday said that analysts think the BoC’s next move on rates will be a hike, not a cut, but that it won’t come until 2Q 2015. However the market is still pricing in a greater chance for a cut in rates by then, which makes me think there’s room for analysts to change their mind and revise down their forecasts. That would weaken CAD. The surge in oil prices following the plunge in US oil inventories in the most recent week may also have helped the CAD, but I remain bearish on oil prices. Deutsche Bank’s head of commodity research, Michael Lewis, said recently that he expected a “new oil supply glut” as three forces combine this year: US shale oil will add 1mn barrels a day to global supply for the third year running; Libya will increase shipments after a near-collapse in 2013; and Iran will start selling oil on the world market again. I think a revision to analysts’ rate expectations plus lower oil prices is likely to keep the CAD under pressure.
Germany and the Eurozone as a whole publish their final CPIs for December today. Germany’s figure as usual was unchanged from the preliminary estimate. No revision is expected for the Eurozone as a whole either from the preliminary estimate of 0.8% yoy. A downward revision would attract a lot of concern in the Eurozone and would probably send EUR/USD lower.
US CPI on the other hand is estimated to have risen 0.3% mom in December vs an unchanged figure in November. This will drive the yoy higher at 1.5% from 1.2%. The core CPI (excluding food and energy) is expected to slow to +0.1% mom from +0.2% mom the previous month, leaving its yoy rate at 1.7%. These rates are not low enough to force the Fed to back off from scaling down its bond purchases and so would be USD-neutral to positive. US weekly jobless claims for Jan 11 are expected at 328k from 330k, while the Philadelphia Fed survey is forecast to rise to 8.7 in January from a revised 6.4 in December. Moreover, the US National Association of Home Builders’ (NAHB) housing market index is estimated to remain unchanged in January at 58, the highest level for this index since 2005. All told, this kind of data should be USD-supportive and I would expect the dollar to rally on the news.
We have two Fed and two ECB Speakers scheduled. ECB council member Jens Weidmann gives a speech on perspectives for 2014 and ECB council member Gaston Reinesch speaks at a conference. Outgoing Fed Chairman Ben Bernanke speaks on “The Fed yesterday, today and tomorrow” and San Francisco Fed President John Williams speaks on quantitative easing and forward guidance.
The Market EUR/USD
• EUR/USD moved lower but the decline was halted by the long-term light blue uptrend line, slightly above the support barrier of 1.3570 (S1). The pair confirms the validity of the trend line and as long as the rate remains above it, the longer-term uptrend is still intact. If the bulls manage to maintain the rate above that line I would expect them to target once again the resistance of 1.3700 (R1). On the other hand, a break below the 1.3525 (S2), which coincides with the 61.8% Fibonacci retracement level of the 7th Nov. – 27th Dec. advance, would suggest that the longer-term uptrend has probably reached its end.
• Support: 1.3570 (S1), 1.3525 (S2), 1.3400 (S3).
• Resistance: 1.3700 (R1), 1.3810 (R2), 1.3893 (R3).
USD/JPY
• USD/JPY rallied after finding support at the key level of 103.00 (S2) and is once again above the 103.90 (S1) barrier. Currently the pair is trading slightly below the hurdle of 105.00 (R1). If the rate manages to overcome the resistance area between 105.00 (R1) and 105.45 (R2), the bias may turn to the upside and the prior uptrend might resume. The MACD oscillator, already above its trigger line, managed to obtain a positive sign, confirming the recent bullish momentum of the price action.
• Support: 103.90 (S1), 103.00 (S2), 102.14 (S3).
• Resistance: 105.00 (R1), 105.45 (R2), 107.00 (R3).
EUR/GBP
• EUR/GBP rebounded from the support barrier of 0.8285 (S1) and moved higher. At the time of writing, the rate is trading between that level and the resistance of 0.8345 (R1). If the longs continue to drive the battle higher and manage to overcome the aforementioned resistance, I would expect them to target the next obstacle at 0.8390 (R2), near the light-blue resistance line. On the daily chart, we can identify positive divergence between the daily MACD and the price action, indicating that the long-term downside momentum is decelerating.
• Support: 0.8285 (S1), 0.8230 (S2), 0.8080 (S3).
• Resistance: 0.8345 (R1), 0.8390 (R2), 0.8430 (R3).
Gold
• Gold moved in a consolidative mode, remaining near the moving averages. The precious metal is trading above the previous low, thus the possibility of a higher low still exists. A break below the 1224 (S1) support is needed to turn the picture negative once again. The MACD, although in a bullish territory, lies below its trigger line, while we can identify negative divergence between the oscillator and the price action. This indicates that the bulls are not strong enough to push the precious metal higher at the moment. On the daily and weekly charts, the longer-term downtrend remains in effect, and as a result I would consider any short-term advance as a retracement of the major downward path for now.
• Support: 1224 (S1), 1187 (S2), 1155 (S3).
• Resistance: 1252 (R1), 1268 (R2), 1290 (R3).
Oil
• WTI continued moving higher, overcoming two resistance levels in a row (today’s support levels) after the US Energy Information Administration said that crude inventories plunged 7.7mn barrels in the week ended Jan. 10th, more than five times what the market had expected. The price completed a short-term double bottom and is now trading above the barrier of 94.00 (S1). Both momentum studies continue their upward paths, while the MACD, already above its trigger, crossed above its zero line, confirming the bullish momentum of the price action.
• Support: 94.00 (S1), 93.30 (S2), 91.50 (S3).
• Resistance: 95.35 (R1), 97.25 (R2), 98.90 (R3).
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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Very Nice analysis I must say.
I am a newbie, and such detailed analysis really helps.
I really like your GOLD chart.
The GOLD has breached the trend line, but I do not think we can witness a major downside from here.
Some people think that buying dips is a good option.
However, the recent moves in the GOLD are not encouraging.
Let's see how it shapes out in the coming days.
Thanks for sharing.
Ajpipsmaker
Market Analysis 17/01/2014
Daily Commentary17.01.2014, Time of writing: 03:30 GMT
The Big PictureInconclusive data, inconclusive market
Inconclusive data yesterday led to a trendless day, with the dollar ending mixed: up against NOK, NZD and GBP, down vs JPY and CHF and largely unchanged vs EUR, CAD, AUD and SEK. The big surprise was the sharp negative reaction to a rise in continuing claims. Although the December CPI figures were exactly in line with expectations and the initial jobless claims were a little better than expected, continuing claims unexpectedly rose. Although apparently this isn’t unusual for the first week of the year, nonetheless the markets took it hard. After the Philadelphia Fed index was up only modestly and the National Association of Homebuilders index fell one point, the tone in the market was quite different from the “strong US economy, strong US dollar” feeling that had prevailed earlier in the week. Ten-year Treasury yields were down 5 bps and the stock market fell from the record high on Wednesday (aided by some disappointing earnings).
The strength of the safe-haven currencies, JPY and CHF, was noticeable. The yen was buoyed by statements from US Treasury Secretary Lew, who said that Japan needs to get its domestic economy growing and can’t rely on a weaker currency for economic advantage, ignoring of course the fact that Japan’s monetary policy is exactly the same as US monetary policy. Given the recent current account deficits in Japan, I don’t think it’s surprising that the yen is weakening and I’d say there’s more than just Bank of Japan policy behind it – the weakness seems fundamentally based and likely to continue, in my view, especially as the trend in the US current account is the exact opposite of Japan.
CHF may have benefitted from comments by ECB Executive Board member Coeure, who reiterated the recent ECB line that their inflation mandate is “symmetrical,” that is, they are just as worried about inflation being too low as too high, and they would take further action if necessary. EUR/CHF fell during the day, suggesting some money moving back into safe-haven CHF even though Swiss National Bank President Jordan reaffirmed the EUR/CHF floor. I was surprised that USD/CAD was so little changed even after Canadian PM said the depreciation of the CAD actually reflects the strength of the US dollar, which “has been undervalued,” rather than weakness of the CAD. That’s a way of saying that the government doesn’t object to the currency falling, which usually would trigger a round of selling. At the same time, the facts back up what Mr. Harper said; according to the OECD’s valuation, CAD is 24% overvalued relative to USD on a purchasing-power parity basis (see graph). It estimates PPP value for USD/CAD to be 1.24. I think the market may pay more attention to that idea as the next Bank of Canada meeting draws near on Jan. 22nd and I would expect USD/CAD to move higher still.
On Friday, the only important release coming out from Europe is the UK retail sales for December. UK retail sales excluding autos are forecast to have slow to +0.3% mom from +0.4% in November. Nonetheless, this would bring the yoy rate up to +3.2% from +2.3% the previous month and confirm that the consumption-led recovery is intact, thereby boosting GBP.
In US, housing starts are expected to have fallen 9.3% mom in December, but this seems quite reasonable after the 22.7% climb in November. Building permits for the same month are expected to be down 0.5% mom, a slower pace of decline than the -2.1% in November. US industrial production is expected to have slowed to +0.3% mom in December from +1.1% in November, while the University of Michigan preliminary consumer sentiment index for December is expected at 83.5, up from 82.5 in November. Mixed numbers like this may not give us any more clarity on the economic picture.
Finally we have three speakers today: ECB Governing Council member Klaas Knot gives a keynote speech in Amsterdam, BoE policy maker Ben Broadbent speaks at the London school of Economics and Richmond Fed President Jeffrey Lacker speaks on the economic outlook. Lacker is unlikely to say anything different from what he said when he gave a speech on the same topic a week ago.
The Market EUR/USD
• EUR/USD consolidated near the long-term light blue uptrend line, slightly above the support barrier of 1.3570 (S1). A break below that line followed by a dip below the support of 1.3570 (S1) may challenge the next support at 1.3525 (S2), which coincides with the 61.8% Fibonacci retracement level of the 7th Nov. – 27th Dec. advance. Furthermore, a violation of that key support would suggest that the longer-term uptrend has probably reached its end and target the area of 1.3400 (S3). On the other hand, a break above 1.3700 (R1) might bring more recovery for the currency pair.
• Support: 1.3570 (S1), 1.3525 (S2), 1.3400 (S3).
• Resistance: 1.3700 (R1), 1.3810 (R2), 1.3893 (R3).
EUR/JPY
• EUR/JPY moved lower after finding resistance slightly below the 143.15 (R1) resistance barrier. The pair is currently trading between the support of 140.88 (S1) and the aforementioned resistance. A clear dip below 140.88 would confirm a lower low and may have larger bearish implications. Nonetheless, an upward break of the 143.15 barrier would argue that the correction from 145.00 (R2) has completed and we may experience a retest of this high. On the daily and weekly charts, the longer term uptrend is still in progress and there is no clear sign of topping yet.
• Support: 140.88 (S1), 139.67 (S2), 138.00 (S3).
• Resistance: 143.15 (R1), 145.00 (R2), 147.00 (R3).
GBP/USD
• GBP/USD moved lower and at the time of writing is testing the support barrier of 1.6335 (S1). A dip below that hurdle may target the next support of 1.6260 (S2), the violation of which may have larger bearish implications. On the daily chart, the negative divergence between the daily MACD and the price action is still in effect, indicating that the longer-term uptrend is still losing momentum for now.
• Support: 1.6335 (S1), 1.6260 (S2), 1.6130 (S3).
• Resistance: 1.6465 (R1), 1.6600 (R2), 1.6735 (R3).
Gold
• Gold continued consolidating at the area of 1240, remaining near the moving averages. The precious metal is trading above the previous low, thus the possibility of a higher low still exists. Both momentum studies lie near their neutral levels, confirming the consolidative mode of the precious metal. The negative divergence between the MACD and the price action is still in effect. This indicates that the bulls are not strong enough to push gold higher at the moment. On the daily and weekly charts, the longer-term downtrend remains in effect, and as a result I would consider any short-term advance as a retracement of the major downward path for now.
• Support: 1224 (S1), 1187 (S2), 1155 (S3).
• Resistance: 1252 (R1), 1268 (R2), 1290 (R3).
Oil
• WTI also moved in a consolidative mode, remaining near the 94.00 (S1) barrier. The RSI is now touching its blue support line and the MACD, although in a bullish territory, is getting closer to its trigger line. If the RSI breaks its support line and MACD crosses below its trigger, that would be a first sign that the bears considered the break above 94.00 (S1) as an opportunity to sell oil at a higher level. Alternatively, a win by the bulls near that area may drive the battle higher at the resistance of 95.35 (R1).
• Support: 94.00 (S1), 93.30 (S2), 91.50 (S3).
• Resistance: 95.35 (R1), 97.25 (R2), 98.90 (R3).
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MARKETS SUMMARY
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Market Analysis 20/01/2014
Daily Commentary 20.01.2014, Time of writing: 03:30 GMT
The Big Picture US indicators lower than November but higher than October
Again it was a day of inconclusive US statistics that gave rise to mixed markets: stocks down and bond (prices) up, but the dollar up against most currencies regardless. Investors seem to have confidence in the US and in US assets; despite the mixed news out of the US and the lower stock market, they are hesitant to chase the rally in European stocks and bonds further. (Euro Stoxx 50 is up 1.5% ytd in local currency terms, vs -0.5% for S&P 500, while the Nikkei has lost 4% in local currency terms so far this year and isn’t attracting investors either.) Despite the slight weakness in US indicators in December, many of them remain higher than in October and so the trend still seems upward. I expect the dollar to remain well bid going into the FOMC meeting next week as tapering expectations build again. The dollar is gaining despite losing some of its support from higher US Treasury yields; it should gain even more as Treasury yields rise again.
US housing starts were soft in December, as expected after the sharp rise in November, and building permits were also lower. Industrial production came in right in line with expectations, which were for a smaller advance than in the previous month. The U of Michigan consumer confidence survey was also weaker. However, the JOLTS survey (Job Opening and Labor Turnover survey) showed that there were 4.0mn job openings in the US in November, up 70k on the month and exceeding market expectations. This was the highest number since March 2008 and shows that the employment picture is indeed improving, adding to the optimistic picture from various other surveys, such as the Beige Book. Nonetheless the stock market fell on some disappointing earnings from GE and Intel, among others, and 10-year Treasury yields fell to a 2014 low of 2.82%.
The dollar was broadly higher against most currencies despite the lower US yields, the exceptions being JPY, NOK and GBP. EUR/USD reached a new 2014 low during the US day and although it recovered a bit, it still had the lowest close so far this year. Meanwhile USD/CAD moved towards 1.10 as the market builds in a risk premium ahead of Wednesday’s Bank of Canada meeting. NZD was weak during the US day and fell further after a small earthquake hit Wellington. AUD was also lower, although it recovered some of its losses after China reported slightly better-than-expected GDP figures for Q4. The correlation between AUD and Chinese data seems to be weakening lately. Other Chinese data, such as industrial production, fixed asset investment and retail sales, was largely in line with expectations and showed little change in the pace of growth in China. GBP continued to gain on the much-better-than-expected retail sales figures announced on Friday.
After the flurry of Chinese data there is little remaining on the schedule for today. Germany’s PPI for December is expected to have remained unchanged on a mom basis in December from a 0.1% mom decline in November. We have only one speaker scheduled: Riksbank Deputy Governor Martin Floden will hold a presentation on the economic situation and the role of monetary policy.
The rest of the week though is really busy. On Tuesday, the highlight will be the German Zew survey for January. The survey is expected to show a rise in both the current situation and expectations, which could temporarily support EUR. Earlier in the day New Zealand’s CPI is forecast to fall slightly. On Wednesday, Bank of Japan holds a policy board meeting and publishes its monetary policy statement. Australia releases its CPI data for Q4. During the European day, the focus will be on UK’s unemployment rate for November, which is expected to fall further – potentially adding to the momentum in GBP -- and the Bank of Canada’s rate decision. We also have the minutes from the latest meeting of BoE. On Thursday, PMIs get their turn. China makes the start with the HSBC manufacturing PMI for January and France, Germany, and Eurozone as a whole follow with their preliminary figures on both manufacturing and service sectors for the month. From Eurozone we also have the preliminary release on consumer confidence for January. From US we get the FHFA house price index for November and the existing home sale for December. Finally on Friday, UK BBA mortgage approvals are coming out and Canada’s CPI for December.
The Market EUR/USD
• EUR/USD violated the linger-term length blue uptrend line and the barrier of 1.3570. The decline was halted by the support of 1.3525 (S1), which coincides with the 61.8% Fibonacci retracement level of the 7th Nov. – 27th Dec. advance. A violation of that key hurdle may open the way towards the area of 1.3400 (S2). The MACD lies below both its trigger and zero lines, while the RSI follows a downward path, confirming the negative momentum.
• Support: 1.3525 (S1), 1.3400 (S2), 1.3295 (S3).
• Resistance: 1.3570 (R1), 1.3700 (R2), 1.3810 (R3).
USD/JPY
• USD/JPY found resistance at the blue trend line, slightly below the 105.00 resistance level, and moved lower. The pair is now finding support at the 103.90 (S1), the violation of which may target once again the key level of 103.00 (S2). The MACD oscillator, already below its trigger line, entered its negative territory, confirming the recent bearish momentum. On the upside, an upward violation of the 105.45 (R2) is needed to signal that the corrective phase has ended and the prevailing uptrend has resumed.
• Support: 103.90 (S1), 103.00 (S2), 102.15 (S3).
• Resistance: 105.00 (R1), 105.45 (R2), 107.00 (R3).
EUR/GBP
• EUR/GBP plunged on Friday after the better-than-anticipated UK retail sales. The pair broke below the 0.8285 level and found support at the 0.8230 (S1) barrier. A clear dip below that level would indicate that the 9th -13th Jan advance was just a 50% retracement of the 17th Dec - 9th Jan decline and will turn the bias to the downside. Nonetheless, the RSI seems ready to rebound from its 30 level, thus an upward corrective wave or some consolidation cannot be ruled out.
• Support: 0.8230 (S1), 0.8165 (S2), 0.8080 (S3).
• Resistance: 0.8285 (R1), 0.8345 (R2), 0.8390 (R3).
Gold
• Gold moved higher and managed to overcome the 1252 barrier, after rebounding near the moving averages. The precious metal is now heading towards the resistance of 1268 (R1), near the longer-term downtrend line (light blue line). Considering that the negative divergence between the MACD and the price action is still in effect, I would expect the bulls to meet strong resistance near that area. As long as the longer-term downtrend remains intact, I would consider any short-term advance as a retracement of the major downward path for now.
• Support: 1252 (S1), 1224 (S2), 1187 (S3).
• Resistance: 1268 (R1), 1290(R2), 1315 (R3).
Oil
• WTI is back below the 94.00 barrier, reaffirming my view that the break above that level was just an opportunity to sell oil at a higher level. WTI is now trading above the support of 93.30 (S1), where a clear dip may target the next support at 91.50 (S2). The RSI violated its blue resistance line, while the MACD crossed below its signal line, confirming the weakness of the longs to drive the oil higher, at the moment.
• Support: 93.30 (S1), 91.50 (S2), 90.15 (S3).
• Resistance: 94.00 (R1), 94.95 (R2), 96.60 (R3).
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MARKETS SUMMARY
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Market Analysis 21/01/2014
Daily Commentary21.01.2014, Time of writing: 03:30 GMT
The Big PictureCurrency divergence
The stories this morning were in individual currencies rather than the dollar. On the one hand, the dollar is a lot stronger against the yen, as would be expected normally with the Tokyo stock market higher. The TOPIX index of Japanese stocks was up 0.6% today on recommendations that the government cut the corporate tax rates. There’s been a 42% correlation between the TOPIX and USD/JPY on a daily basis over the last year. There’s also a relatively strong positive correlation between USD/JPY and US Treasury yields, and 10-year US Treasury yields were 2 bps higher after several days of decline. The Bank of Japan started its two-day meeting and although no change in policy is likely this time, I expect them to expand their stimulus program sometime in Q2 after the hike in the consumption tax. That should provide another leg up for USD/JPY, in my view. The dollar was also higher vs SEK and NOK, which was probably carry-over from yesterday’s European action.
On the other hand, the dollar was sharply lower vs NZD after New Zealand’s Q4 CPI came out as +0.1% qoq instead of -0.1% qoq as the market had expected. The Real Estate Institute of New Zealand (REINZ) national housing price index was down 1.0% mom in December, but as November was a record high and December was still above October’s level, it still appears that the trend is up. Faster inflation, rising house prices and business confidence at a 20-year high make it more likely that the Reserve Bank of New Zealand will raise rates from the record-low 2.5% at the Jan. 30th meeting. The market is now pricing in a 63% chance of a hike at the meeting and the NZD appreciated as a result. I have consistently argued that NZD should be one of the better-performing currencies this year because of the RBNZ’s exceptional monetary policy – the only G10 central bank with a declared tightening bias. It looks like the tightening cycle could begin even earlier than I had expected, which should further support the currency’s outperformance. AUD was also dragged along with NZD to some degree, aided also by a rally in Chinese stocks after the central bank injected cash into the Chinese money market to hold down rates.
Platinum gained further as miners’ strikes loom, but the strength in platinum did not spill over into gold or silver, which were lower. That’s a bad sign for sentiment for the other precious metals, in my view.
In Europe, the focus today will be on the ZEW survey for January. The current situation index is expected to rise to 35.0 from 32.4 in December and the expectations index to 64.0 from 62.0. An improvement like that might temporarily support the euro. The hit ratio for the current situations index is fairly random – six out of the last 12 have beaten the market forecast, six have missed – but the last five expectations indices have all surprised on the upside as have 9 out of the last 12 months. Does that mean that economists will eventually start predicting this one better, or that peoples’ inability to forecast the indicator offers a chance to make some money? Remember: past performance is no guarantee of future performance. Also today the Confederation of British Industry releases its CBI Trends survey. Total orders are expected to be down, but business optimism is expected to be up. Mixed news suggests little reaction likely from GBP. Also, there are two speakers on the schedule: ECB’s council member Ewald Nowotny speaks to the Austrian business journalists’ club and BoE’s Andy Haldane gives a speech at the Institute for Law and Finance series.
The Market EUR/USD
• EUR/USD moved higher after finding support at the 1.3525 (S1) barrier, which coincides with the 61.8% Fibonacci retracement level of the 7th Nov. – 27th Dec. advance. Nonetheless, the advance was stopped slightly below the resistance of 1.3570 (R1) and the pair gave back a portion of its gains. A violation of the 1.3525 (S1) key hurdle may open the way towards the area of 1.3400 (S2). The MACD remains within its negative territory, but seems ready to cross above its trigger line, thus another upward retracement should not be ruled out (especially if today’s ZEW indices come out better than the previous month, as the market estimates). The outlook remains to the downside since the decline from 1.3893 is still in progress.
• Support: 1.3525 (S1), 1.3400 (S2), 1.3295 (S3).
• Resistance: 1.3570 (R1), 1.3700 (R2), 1.3810 (R3).
EUR/JPY
• EUR/JPY found once again support near the 140.88 (S1) barrier and moved higher. The pair remains within its sideways path between that support and the resistance of 143.15 (R1). An upward violation of 143.15 (R1) would argue that the correction from 145.00 (R2) has completed and we may experience a retest of this high. On the other hand, a drop below the lower boundary of the trading range may have larger bearish implications. The MACD, although in bearish territory, follows an upward path and seems ready to cross above its signal line, confirming the weakness of the bears to drive the battle lower, for now. On the daily and weekly charts, the longer term uptrend is still in progress and there is no clear sign of topping yet.
• Support: 140.88 (S1), 139.67 (S2), 138.00 (S3).
• Resistance: 143.15 (R1), 145.00 (R2), 147.00 (R3).
GBP/USD
• GBP/USD moved in a consolidative mode, remaining below the resistance barrier of 1.6465 (R1), the violation of which may target once again the highs of 1.6600 (R2). Only a dip below the 1.6335 (S1) would turn the bias to the downside and trigger further declines. Nonetheless, I remain neutral on the pair for now, since it is not in a clear trending phase and I would wait for a clearer picture. On the daily chart, the negative divergence between the daily MACD and the price action is still in effect, indicating that the longer-term uptrend is still losing momentum for now.
• Support: 1.6335 (S1), 1.6260 (S2), 1.6130 (S3).
• Resistance: 1.6465 (R1), 1.6600 (R2), 1.6735 (R3).
Gold
• Gold moved slightly lower and at the time of writing is testing once again the 1252 (S1) barrier, as a support this time. A break below it may confirm the inability of the longs to drive the price higher. The negative divergence between the MACD and the price action remains in effect, providing another sign of weakening bullish momentum. On the longer time frames, the longer-term downtrend remains intact, thus I still consider the short-term advance as corrective wave of the major downward path for now. Only a clear violation of the light blue downtrend line and the resistance of 1268 (R1) would be a reason to reconsider our analysis.
• Support: 1252 (S1), 1224 (S2), 1187 (S3).
• Resistance: 1268 (R1), 1290(R2), 1315 (R3).
Oil
• WTI found support near the 93.30 (S1) but failed to violate that level and is back near 94.00. A break above the resistance of 94.95 (R1) may turn the picture positive and trigger extensions towards the next resistance hurdle at 96.60 (R2). Alternatively, a dip below the 93.30 (S1) support may target once again the recent lows of 91.50 (S2).Relying on our momentum studies does not seem a solid strategy for now, since the MACD lies below its signal line, pointing down, while the RSI is pointing upwards.
• Support: 93.30 (S1), 91.50 (S2), 90.15 (S3).
• Resistance: 94.95 (R1), 96.60 (R2), 98.30 (R3).
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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Market Analysis 22/01/2014
Daily Commentary 22.01.2014, Time of writing: 03:30 GMT
The Big Picture Central bank policy leads the market
The dollar was generally lower this morning although without any US-specific news to move the currency. US stocks, bonds and Fed Funds futures were little changed and hence gave no clear direction to the market.
AUD was the biggest gainer after Q4 inflation came in much higher than expected at +0.8% qoq, vs a forecast of +0.4%. This lifted the yoy rate of change to 2.7%, meaning it’s in the upper half of the Reserve Bank of Australia’s 2% to 3% range. That makes it more difficult for the RBA to cut rates in the future, especially as prices for domestic goods and services rose significantly faster (3.7% yoy) than traded goods (+1.0%). As the recent decline in the AUD feeds through to traded goods it will lift the overall inflation rate even further. That may force RBA Gov. Stevens to stop trying to talk down the currency, which has been a major reason why it’s been declining recently. My view is that lower inflation is a global phenomenon, not just local in the Eurozone and US, and that the RBA will not be concerned about a slight uptick one quarter. I therefore do not expect them to stop their campaign for a lower AUD and expect AUD to continue to depreciate.
JPY also gained vs USD overnight after the Bank of Japan refrained from taking any new measures at its Policy Board meeting that ended today. I can’t believe anyone expected them to take any measures so I think this is just an excuse for profit-taking. Since most indicators are generally moving in the direction they expect, I think they are likely to wait until after the hike in the consumption tax later this year to gauge the economy’s response before taking any further measures. I expect the yen to resume weakening in the near future, particularly if (as I expect) the Fed does continue tapering off its bond purchases at this month’s meeting. That should encourage more investors to switch their funding out of USD and into JPY and set the stage for a further decline in the yen.
On the other hand, CAD was the main loser vs USD as the market priced in today’s Bank of Canada meeting, although it recovered from its lows of the day. Economists unanimously expect the BoC to keep its benchmark interest rate at 1.0%, so the focus will be on the press conference afterwards and whether Governor Poloz provides any clues about lowering rates in the future. Confirmation that the BoC favors an easier policy is likely to put further downward pressure on CAD, in my view.
Another round of snow and freezing temperatures in the US gave natural gas another lift upwards.
Despite the weaker dollar, gold and silver were both down sharply. Even platinum fell. Again this is a discouraging sign for sentiment towards the precious metals.
During the European day, investors’ focus will be on the release of UK unemployment rate. The rate is estimated to have fallen to 7.3% in November from 7.4% in October, closer towards the BoE’s 7.0% threshold for considering a rate hike. Although the Bank has said it is willing to maintain a loose policy even after the threshold is reached, especially with no concerns on inflationary pressure, we expect the market to react positive on the release and push GBP higher. We also get the minutes of the Bank of England’s January meeting. From US, the only indicator coming out is the MBA mortgage applications for the week ended on January 17. As for speakers, Riksbank deputy governor Per Jansson will hold a presentation on the economic situation at a seminar and BoE’s Ian McCafferty speaks at the Nottingham Business School.
The Market EUR/USD
• EUR/USD rebounded once again from the 1.3525 (S1) barrier, which coincides with the 61.8% Fibonacci retracement level of the 7th Nov. – 27th Dec. advance. The currency pair is now testing the resistance of 1.3570 (R1). Nonetheless, I would expect any upward wave to be limited, if it’s not already ended at the aforementioned resistance, and I would consider it as a renewed selling opportunity. A violation of the 1.3525 (S1) key hurdle may open the way towards the area of 1.3400 (S2). The outlook remains to the downside since the decline from 1.3893 is still in progress.
• Support: 1.3525 (S1), 1.3400 (S2), 1.3295 (S3).
• Resistance: 1.3570 (R1), 1.3700 (R2), 1.3810 (R3).
USD/JPY
• USD/JPY tested the purple resistance line and moved lower. At the time of writing, the pair is trading slightly above the support of 103.90 (S1) the violation of which may target once again the key level of 103.00 (S2). On the upside, an upward violation of the 105.45 (R2) is needed to signal that the corrective phase has ended and the prevailing uptrend has resumed. The MACD oscillator lies near is moving sideways, near its zero line, indicating neutral momentum at the moment. On the daily chart, the longer term uptrend remains intact and since no significant signs of topping are identified, I would consider the short-term decline as a correcting phase, at the moment.
• Support: 103.90 (S1), 103.00 (S2), 102.15 (S3).
• Resistance: 105.00 (R1), 105.45 (R2), 107.00 (R3).
EUR/GBP
• EUR/GBP broke below the 0.8230 barrier, but met the next hurdle immediately after the break. The pair rebounded at the purple support line (connecting the lows of the price action on the daily chart) and returned to test the 0.8230 (R1) level as a resistance this time. A further decline in the unemployment rate in the UK today may encourage the bears to violate the aforementioned support line and challenge the barrier of 0.8160 (S2). Alternatively, if the price meets strong support at the area is being trading and manage to overcome the 0.8230 (R1) resistance, we might experience extensions towards the next resistance at 0.8285 (R2).
• Support: 0.8160 (S1), 0.8080 (S2), 0.8035 (S3).
• Resistance: 0.8230 (R1), 0.8285 (R2), 0.8345 (R3).
Gold
• Gold moved lower on Tuesday after finding resistance at 1257 (R1). The decline was halted by the 200-period moving average, slightly above the support level of 1235 (R1). The MACD oscillator formed a third lower high after touching the blue resistance line and crossed below its trigger line. The oscillator is also trading slightly below its zero line. As a result the negative divergence between the study and the price action is still in effect, and the weakness signs of the recent advance are increasing. On the longer time frames, the longer-term downtrend remains intact, thus I still consider the short-term advance as corrective wave of the major downward path for now. Only a clear violation of the light blue downtrend line and the resistance of 1268 (R2) would be a reason to reconsider our analysis.
• Support: 1235 (S1), 1224 (S2), 1187 (S3).
• Resistance: 1257 (R1), 1268(R2), 1290 (R3).
Oil
• WTI moved higher yesterday, breaking above the 95.00 barrier. Currently the price is trading near the 200-period moving average and a clear cross above it may challenge the resistance of 96.50 (R1). Oil has formed a higher low and since it managed to overcome the previous high, the outlook is bullish in the near-term. The MACD oscillator continues its upward path and lies above both its zero and trigger lines, confirming the positive picture.
• Support: 95.00 (S1), 94.00 (S2), 93.30 (S3).
• Resistance: 96.50 (R1), 98.30 (R2), 98.90 (R3).
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Market Analysis 23/01/2014
Daily Commentary 23.01.2014, Time of writing: 03:30 GMT
The Big Picture Commodity currencies in focus
Most of the big movements in currencies were during the European day yesterday as the pound gained on a bigger-than-expected fall in unemployment and CAD eased on comments from the Bank of Canada suggesting that their currency is overvalued.
The Bank of Canada’s quarterly Monetary Policy Report said that their currency “remains strong” and “will continue to pose competitiveness challenges” for Canadian exports. This echoes recent comments by PM Harper that the rise in USD/CAD is due to a strong USD,
not a weak CAD, and that the CAD remains overvalued (which it is on a purchasing-power-parity basis; the OECD estimates that it’s 10.5% overvalued vs USD and 6.3% overvalued vs EUR). The BoC also lowered their inflation forecast and hinted that its next move in rates could be down as well as up. I expect CAD to remain weak for some time as this trend seems to have the full support of the Canadian authorities as well as fundamental justification. Verbal intervention is a lot more effective when it’s just suggesting to traders that they do what logic suggests they should do anyway.
The surprise in the market was the reversal in AUD and NZD despite encouraging economic news from both of them. The reason for their decline was the fall in the HSBC/Markit flash manufacturing PMI for January, which fell below the 50 boom-or-bust line to 49.6 from 50.5 in December, indicating a slowdown in manufacturing in China. The market had been expecting a smaller decline to 50.3, which would have left the Chinese economy still in expansion. The currencies fell even though Australian consumer inflation expectations and New Zealand consumer confidence both rose in January, news that otherwise might have been expected to support the two currencies. Although both currencies fell vs the USD, NZD gained against AUD after NZ PM Key said the New Zealand economy would grow strongly this year.
I continue to expect AUD/USD to move lower, contrary to what the market concluded after Wednesday’s CPI figures, and look for AUD/NZD to decline further as Australia remains more sensitive to the restructuring of the Chinese economy than New Zealand. New Zealand’s exports to China are largely agricultural and may actually benefit from a restructuring of the Chinese economy as Chinese consumer spending power increases, while Australia’s mineral and energy exports to the country could be expected to decline.
Thursday is a PMI day. Following the lower Chinese manufacturing PMI, we get the preliminary PMIs on both the manufacturing and service sectors from France, Germany and Eurozone as a whole. Both the manufacturing and service-sector preliminary PMIs from France are forecast to have improved in January, but remain below the critical 50 barrier. Germany’s and Eurozone’s releases are also expected to be up in both sectors. That could support EUR/USD during European trading. The Markit manufacturing PMI for the US – not as widely watched as the ISM index – is also expected to rise, but it’s not clear whether this will have any impact on the market. From Eurozone we also have the preliminary consumer confidence for January. The index is estimated to rise to -13.0 from -13.6 in December.
From US, initial jobless claims for the week ended on Jan 18 are expected to have risen to 330k from 326k, while the continuing claims for the week ended on Jan 11 are forecast to be down to 2900k from 3030k previously. Last week the dollar ignored the better-than-estimated initial claims, even the favorable CPI data, and declined on the rise in continuing claims, so a decline this week almost back to where they were (2856k) could support the dollar. The other data coming out is also expected to be largely USD-positive, especially the housing news. The Conference Board US leading index is forecast to be up +0.2% in December, a slowdown from +0.8% in November. The Chicago Fed national activity index is estimated to have risen to 0.90 in December from 0.60 in November. The US Federal Housing Finance Agency (FHFA) house price index is estimated to have slowed to +0.4% mom in November from +0.5% mom in October and existing home sales are forecast to have risen 0.6% in December, a turnaround from a decline of 4.3% in November.
Elsewhere, Sweden’s unemployment rate for December is expected to fall to 7.9% from 8.0% on a seasonally adjusted basis. Canada’s retail sales for November are estimated to have risen 0.2%, a turnaround from -0.1%.
As for speakers, BoE’s Paul Fisher speaks at an event in London.
The Market EUR/USD
• EUR/USD remained between the 1.3525 (S1) barrier, which coincides with the 61.8% Fibonacci retracement level of the 7th Nov. – 27th Dec. advance, and the resistance of 1.3570 (R1). A violation of the 1.3525 (S1) key hurdle may open the way towards the area of 1.3400 (S2). On, the upside, only a break above the resistance 0f 1.3700 (R2) may confirm that the decline from the 1.3893 has been completed. Otherwise, the outlook remains negative.
• Support: 1.3525 (S1), 1.3400 (S2), 1.3295 (S3).
• Resistance: 1.3570 (R1), 1.3700 (R2), 1.3810 (R3).
EUR/JPY
• EUR/JPY remained near the levels we left it. The pair is still within its sideways path between the support of 140.88 (S1) and the resistance of 143.15 (R1). All our short-term studies confirm the consolidation, since both the moving averages are pointing sideways and both momentum indicators lie near their neutral levels. An upward violation of 143.15 (R1) would argue that the correction from 145.00 (R2) has completed and we may experience a retest of this high. On the other hand, a drop below the lower boundary of the trading range may have larger bearish implications. The MACD continues its upward path, confirming the inability of the bears to drive the battle lower, for now. On the daily and weekly charts, the longer term uptrend is still in progress and there is no clear sign of topping yet.
• Support: 140.88 (S1), 139.67 (S2), 138.00 (S3).
• Resistance: 143.15 (R1), 145.00 (R2), 147.00 (R3).
GBP/USD
• GBP/USD rallied yesterday after UK unemployment fell more than estimated in November. The pair violated the 1.6465 hurdle and surged after the figure was out. In early European trading the rate is slightly below the highs of 1.6600 (R1). If the longs manage to overcome those highs, the longer term uptrend may resume and we might experience extensions towards the obstacle of 1.6735 (R2). However, since the RSI seems ready to exit its overbought zone, I would expect a pullback before the bulls prevail again. Only a dip below the 1.6335 (S2) would turn the bias to the downside.
• Support: 1.6465 (S1), 1.6335 (S2), 1.6260 (S3).
• Resistance: 1.6600 (R1), 1.6735 (R2), 1.6885 (R3).
Gold
• Gold continued moving lower on Wednesday, reinforcing my view that the recent short-term advance is not the healthiest to follow. The price action confirms the negative divergence between the MACD and the price action. The oscillator is also below both its trigger and zero lines, indicating bearish momentum at the moment. A break below the support of 1224 (S2) is needed to indicate that the advance has completed and the longer-term downtrend has resumed. As long as the precious metal is trading below the longer-term downtrend line (light blue line) the major downward path remains in progress. Only a clear violation of the aforementioned downtrend line and the resistance of 1268 (R2) would be a reason to reconsider our analysis.
• Support: 1235 (S1), 1224 (S2), 1187 (S3).
• Resistance: 1257 (R1), 1268(R2), 1290 (R3).
Oil
• WTI continued its advance and found resistance at 96.70 (R1) and the upper boundary of the purple upward sloping channel. The MACD continues its upward path, nonetheless, the RSI seems ready to cross below its 70 barrier, thus a pullback during the day cannot be ruled out. As long as WTI is now trading above both the moving averages and since it is printing higher lows and higher highs within the purple upward sloping channel, the near-term outlook remains bullish.
• Support: 95.00 (S1), 94.00 (S2), 93.30 (S3).
• Resistance: 96.70 (R1), 98.30 (R2), 98.90 (R3).
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Market Analysis 24/01/2014
Daily Commentary24.01.2014, Time of writing: 03:30 GMT
The Big PictureEM currencies in the firing line
Yesterday it was the EM currencies that took the spotlight. The Argentinian peso (ARS) and Turkish Lira (TRY) were down sharply during the day. The ARS fell around 12% (it was down 15% at one point) after the central bank stepped back from its efforts to protect the currency. The TRY first fell sharply in the morning, then rallied after the central bank intervened directly in the market to break the momentum, but that didn’t hold the market for long and the currency quickly resumed its decline. This morning it’s trading down around 1.5% from where it was yesterday morning despite the intervention. Many other EM currencies also fell, such as BRL, ZAR, MXN and RUB, although there were some gainers too: the CZK was up more than 1% vs USD and PLN and even THB also rose. The trigger was probably yesterday’s unexpected fall in the China manufacturing PMI to below 50, which is worrisome for the EM world in that it bodes ill for the price of commodities. That may explain the decline in KRW, MYR, BRL, ZAR, and RUB, all of which are large exporters to China. It would also explain why AUD was the only G10 currency to open weaker vs USD this morning. The move does not seem to be total EM contagion yet, but rather the markets taking aim at specific currencies that are deemed to be in a difficult position, particularly those with large current account deficits and exposure to China. The combination of Fed tapering plus a slowdown in China is likely to present a headwind for these currencies for several months at least and so we are probably going to see many more such days again in the future.
Against the G10 currencies however the dollar was relatively weak, gaining as mentioned against only the AUD. The biggest winner was the CHF after the Swiss government raised capital requirements for banks, which now must hold more reserves against mortgages. This is considered to be a tightening of monetary conditions. At the same time the dollar was down by more than 1% against the NOK, EUR and SEK as well. Following the drop in the Chinese PMI, the Markit US PMI fell in January, whereas a rise was expected. Although this version of the PMI is usually not as closely watched as the ISM index, the market was apparently nervous and hence more sensitive to surprises than usual following the Chinese slowdown. An unexpected drop in US existing home sales in December didn’t help, either. Apparently many investors are anticipating that if the global economy does start to slow and the US is affected, the Fed won’t end its quantitative easing program. US 10-year Treasury yields were off 10 bps and the implied rates on the 2016 Fed Funds futures lost 11-13 bps, which naturally would remove some of the yield support from USD.
It’s curious that risk aversion in EM countries and fears of a global slowdown sparked an exodus from the dollar. It’s not clear to me why risk aversion should send funds flowing into the Eurozone, a region that still has plenty of its own problems to deal with. A slowdown is likely to hit Europe more than the US as the European economies (read: Germany) are more dependent on external demand than the US is. The move could be reversed if the market thinks the US is in better shape to weather a downturn than Europe is. In this context, the statement after next week’s FOMC meeting becomes even more important than usual.
After a pretty busy Thursday comes a relatively quiet Friday. Italy starts with its retail sales estimated to show no changes in November on a mom basis vs a decline of 0.1% in October. From UK, the BBA mortgage approvals for December are estimated to be up 47300, from 45044 in November, a GBP-supportive number. In Canada, the headline CPI is forecast to accelerate to 1.3% from 0.9%, with core inflation also accelerating to 1.3% from 1.1%. That could induce more profit-taking in USD/CAD as it runs counter to the Bank of Canada’s forecast of lower inflation.
We have two speakers scheduled during the day. ECB President Mario Draghi speaks on “The path from crisis to stability” in Davos and Bank of England Governor Mark Carney speaks to the Davos CBU British Business Leaders Lunch. Carney’s speech is shaping up to be a major event for the day, as he’s signaled that he may announce a change in the BoE’s forward guidance. My guess is that he would change it to a method that might justify a rate hike earlier than expected (the market is currently discounting the first rate hike coming about two years from now). If so, that should be GBP-positive, in my view.
The Market EUR/USD
• EUR/USD surged yesterday after testing the strong support of 1.3525 (S2), which coincides with the 61.8% Fibonacci retracement level of the 7th Nov. – 27th Dec. advance. The pair violated to the upside the 1.3570 barrier and climbed to find resistance a couple of pips below the hurdle of 1.3700 (R1). A break above that resistance may confirm that the decline from the 1.3893 (R3) has been completed and that it was just a 61.8% retracement of the prevailing short-term advance. On the other hand, a failure of the longs to overcome the aforementioned key resistance may result in a challenge once again of the support area between the 1.3525 (S2) and 1.3570 (S1) barriers.
• Support: 1.3570 (S1), 1.3525 (S2), 1.3400 (S3).
• Resistance: 1.3700 (R1), 1.3810 (R2), 1.3893 (R3).
USD/JPY
• USD/JPY tested once again the purple resistance line and moved lower to fall below the 103.90 barrier. The rate reached the next support at 103.00 (S1) and stopped its decline. A clear dip below the 103.00 (S1) barrier may drive the battle towards the 38.2% Fibonacci retracement level of the prevailing uptrend, near the support of 102.14 (S2). On the upside, an upward violation of the 105.45 (R3) is needed to signal that the corrective phase has ended and the prevailing uptrend has resumed. On the daily chart, the longer term uptrend remains intact and since no significant signs of topping are identified, I would still consider the short-term decline as a correcting phase, at the moment.
• Support: 103.00 (S1), 102.14 (S2), 101.12 (S3).
• Resistance: 103.90 (R1), 105.00 (R2), 105.45 (R3).
EUR/GBP
• EUR/GBP rallied yesterday, after rebounding at 0.8167 (S1), but the rise was halted by the 0.8230 (R1) resistance. As long as that resistance holds and the rate is trading below both the moving averages, the picture remains mildly bearish and I would consider yesterday’s advance as an upward corrective wave and a renewed selling opportunity. Alternatively, if the price manage to overcome the 0.8230 (R1) resistance, the picture changes and we might experience extensions towards the next resistance at 0.8285 (R2).
• Support: 0.8167 (S1), 0.8080 (S2), 0.8035 (S3).
• Resistance: 0.8230 (R1), 0.8285 (R2), 0.8345 (R3).
Gold
• Gold was also one of the major winners yesterday. The metal climbed after testing the support of 1235 (S2) and violated the barrier of 1257 (S1). The price now consolidates near the longer-term downtrend line (light blue line). A break above the resistance of 1268 (R1) may have larger bullish implications, targeting the next obstacle at 1290 (R2). The MACD broke its blue resistance line and is back above both its trigger and zero lines, indicating that the precious metal regained positive momentum. On the other hand, a break below 1257 (S1) would keep alive the scenario that the recent advance was just a retracement of the longer-term downward path.
• Support: 1257 (S1), 1235 (S2), 1224 (S3).
• Resistance: 1268 (R1), 1290 (R2), 1315 (R3).
Oil
• WTI continued its advance after a US government report showed that US petroleum product inventories, such as heating oil and diesel, declined more than expected, showing that the cold weather is having a larger-than-expected impact on fuel demand. Oil broke above the 96.70 hurdle and is riding the upper boundary of the purple upward sloping channel. I expect WTI to continue its advance and challenge the resistance barrier of 98.30 (R1). The MACD continues its upward path, but the RSI remains within its overbought zone, thus some consolidation or a pullback cannot be ruled out upon the indicator’s exit of the extreme area. As WTI is now trading above both the moving averages and since it is printing higher lows and higher highs within the purple upward sloping channel, the near-term outlook remains bullish.
• Support: 96.70 (S1), 95.00 (S2), 94.00 (S3).
• Resistance: 98.30 (R1), 98.90 (R2), 100.55 (R3).
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Market Analysis 27/01/2014
Daily Commentary 27.01.2014, Time of writing: 03:30 GMT
The Big Picture The dollar is generally stronger against the G10 currencies this morning, the main exception being the two safe-haven currencies, JPY and CHF. Their gains come against the background of sharp falls in stock markets on Friday that continued this morning in Asia. The rout in emerging market currencies also contributed to the flight to safety as most of the EM currencies that we track depreciated against the dollar, with the RUB and ZAR falling again by more than 1% and the INR not far behind. EM CDS rates were generally wider as well, which suggests that investors are worried about the impact of the FX market movements on the economies of these countries. Gold also benefitted from the insecurity, but silver and the other precious metals failed to gain.
Japan’s trade deficit in December was narrower than expected on a seasonally adjusted basis, but this was probably due to imports being lower than expected; exports also missed expectations. The country had a record trade deficit for 2013 nearly double that of the previous year (JPY 11.5tn vs JPY 6.9tn). Imports have now exceeded the level of before the financial crisis, but exports are still only 81% of their previous peak. While market turmoil may temporarily cause short-covering in short JPY positions, I believe the fundamentally weak trade position of Japan is likely to undermine the yen over the longer term. The problems facing EM countries as the Fed tapers and EM currencies weaken presents another headwind for Japan. Many of Japan’s major markets are EM countries: China (#1 export market for Japan), South Korea (#3), Thailand (#4), Singapore (#6), Indonesia (#7), Malaysia (#9).
For today, the main item in the European agenda is the German Ifo survey for January. All the business climate, expectations and the current assessment indices are expected to have risen from December. Positive sentiment in Eurozone’s engine might be an extra boost for EUR/USD. From the US, new home sales for December are forecast to have continued declining, but at a slower pace than in November, while the Dallas Fed manufacturing survey for January is forecast to rise modestly.
As for the speakers, ECB’s Constancio and BoE’s Cunliffe speak at a conference and ECB’s Jens Weidmann speaks in Stuttgart
For the rest of the week, the spotlight will be the FOMC meeting that ends on Wednesday. The market expects the Fed officials to continue scaling back their bond purchases by another USD 10bn. There is no press conference scheduled for after the meeting, so initially the statement will be all that we have to go on. Subsequent speeches by Fed officials will therefore be a major point of interest afterwards. Assuming that they do decide to continue with their tapering, I would expect the dollar to rebound somewhat, because there apparently are some market participants who are assuming that they won’t (10yr Treasury yields are down 16 bps since the Dec. 18th FOMC meeting).
There is also an RBNZ meeting the same day; a few economists think that they may raise rates, but most don’t.
On Tuesday, UK releases its preliminary GDP for Q4. From US, durable goods orders for December, the S&P/Case-Shiller home price index for November, the Conference board consumer confidence index for January and the Richmond Fed manufacturing survey for the same month, are coming out. On Wednesday, we have the UK Nationwide house price index for January and Eurozone’s M3 for December. On Thursday, HBSC publishes the final Chinese manufacturing PMI for January. This is the figure that upset markets so much last Thursday when the preliminary version came out so there is likely to be a lot of attention paid to it. From Germany we get the unemployment rate and the preliminary CPI, both for January. The German CPI is a major indicator as inflation in the Eurozone falls sh arply. ECB President Draghi has dismissed fears of deflation, but the market will still be sensitive to any further declines. From the UK, mortgage approvals for December are coming out. From Eurozone, we have the final consumer confidence for January and from US, the preliminary GDP figures for Q4. Finally, on Friday, during the Asian morning, we have the usual end-of-month data dump from Japan. From Eurozone, the unemployment rate for December and the preliminary CPI data for January are due out. In US, we have the personal income and spending for December and the University of Michigan final consumer sentiment for the current month. Elsewhere, Norway releases its unemployment rate for January and Canada its GDP for November.
The Market EUR/USD
• EUR/USD tried to overcome the 1.3700 (R1) resistance on Friday, but the longs were not strong enough to maintain the rate above the barrier. The pair now consolidates below that hurdle and if the German Ifo Survey for January comes out better than in December (as estimated), then I would expect another attempt for the violation of the aforementioned resistance. A clear break may open the way towards 1.3810 (R2). Alternatively, a dip below 1.3650 (S1) may result in a challenge once again of the support area between the 1.3525 (S3) and 1.3570 (S2) barriers.
• Support: 1.3650 (S1), 1.3570 (S2), 1.3525 (S3).
• Resistance: 1.3700 (R1), 1.3810 (R2), 1.3893 (R3).
USD/JPY
• USD/JPY fell below the 103.00 level and reached the support barrier of 102.14 (S1), near the 38.2% Fibonacci retracement level of the prevailing uptrend. If selling pressure continues pushing the price lower, a downward penetration of the 102.14 (S1) support may extend the move towards 101.12 (S2), near the 50% retracement level of the prior advance. Nonetheless, since the RSI seems ready to exit the oversold zone, we may experience an upward corrective wave, maybe to test once again the 103.00 (R1) level as a resistance this time. The 50-period moving average is getting closer to the 200-period moving average, thus a bearish crossover in the near future may enhance the negative outlook.
• Support: 102.14 (S1), 101.12 (S2), 100.00 (S3).
• Resistance: 103.00 (R1), 103.90 (R2), 105.00 (R3).
EUR/GBP
• EUR/GBP surged on Friday after BoE Governor Carney said that the appreciation of sterling may hamper the exports of UK. The pair violated to the upside the 0.8230 (R1) obstacle, driving the action above the next barrier at 0.8285 (R2), slightly below the 200-period moving average. A good Ifo release may push the price higher and target the next resistance at 0.8345 (R3). The MACD oscillator lies above both its zero and signal lines, confirming the recent bullish momentum. My only concern is that the RSI found resistance at its 70 level and the price is still trading below the 200-period moving average.
• Support: 0.8285 (S1), 0.8230 (S2), 0.8167(S3).
• Resistance: 0.8345 (R1), 0.8390 (R2), 0.8465 (R3).
Gold
• Gold tested the longer term downtrend line (light-blue line) as a support and moved higher, breaking above the 1268 hurdle. The picture remains positive and I would expect the metal to challenge the resistance of 1290 (R1). The MACD remains above both its trigger and zero line, indicating that the momentum is to the upside. The RSI is still finding resistance near its 70 level, thus further consolidation or a pullback cannot be ruled out.
• Support: 1268 (S1), 1257 (S2), 1235 (S3).
• Resistance: 1290 (R1), 1315 (R2), 1340 (R3).
Oil
• WTI moved lower after finding resistance near the upper boundary of the purple upward sloping channel and is currently trading slightly above the barrier of 96.50 (S1). I still expect WTI to advance and challenge the resistance barrier of 98.30 (R1). The 50-period moving average is pretty close to the 200-period moving average and a bullish cross may be an additional confirmation of WTI’s positive picture. As long as the price is trading above both the moving averages and since it is printing higher lows and higher highs within the purple upward sloping channel, the near-term outlook remains bullish.
• Support: 96.50 (S1), 95.00 (S2), 94.00 (S3).
• Resistance: 98.30 (R1), 98.90 (R2), 100.55 (R3).
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Market Analysis 28/01/2014
Daily Commentary28.01.2014, Time of writing: 03:30 GMT
The Big Picture USD is opening mixed in Europe, with some profit-taking in the safe-haven JPY and CHF, which were so strong yesterday. On the other hand the AUD and NZD rallied strongly overnight. Both these moves are consistent with some calm returning to the market and a recovery in risk appetite. This was also evident in the rebound in US stocks during the day (although ultimately they closed lower) and slightly higher US Treasury yields.
Some familiar themes are coming back. GBP recovered along with the high-beta currencies. Its day of volatility following Bank of England Gov. Carney’s speech last Friday is fading fast and the strong-GBP theme is returning. Similarly, CAD was the biggest loser in the G10 overnight even though Finance Minister Flaherty said there was no government push to drive the currency down. He said the market sets the rate; if so, the market appears to be setting it lower.
Most EM currencies were weaker again today in with the conspicuous exception of MXN, which gained after the trade surplus for December came in at double market estimates. That only demonstrates again the importance that the market places on EM countries being able to finance themselves. KRW also rebounded.
Today the focus of attention will be on the late-night meeting of the Turkish central bank tonight. The central bank said it will “take the necessary policy measures for price stability” at an extraordinary meeting this evening. Speculation is that it could do anything from raising interest rates massively (3 percentage points has been mentioned) to imposing capital controls. Together with the South African Reserve Bank (SARB) meeting tomorrow, these two have the potential to stabilize the EM crisis and reverse some of the sharp movement we’ve seen in the FX markets recently. Then again, they also have the potential to disappoint. The commodity currencies would be an obvious G10 beneficiary, but optimistic investors might also want to consider buying NOK as well if they expect a rebound in EM. NOK has been the currency most closely correlated with TRY and ZAR over the last year. The correlation between TRY and the commodity currencies isn’t much different than that with TRY and EUR, which implies that a recovery in TRY today could help EUR/USD as well.
As for the indicators, the European day starts with France’s consumer confidence for January which is expected to remain unchanged. Sweden takes its turn with its PPI, its retail sales and its trade data, all for December. The country’s PPI is estimated to have risen at the same pace as in November, while growth in retail sales is forecast to have slowed. Last month the figure exceeded estimates and SEK reacted strongly, rising approximately 120 pips, thus a slowdown may be SEK-negative.
In the UK, the nation’s preliminary GDP for Q4 is estimated to have risen 0.7% on a quarterly basis, a slowdown from +0.8% qoq in Q3. Nonetheless, the yoy rate is forecast to be up to +2.8% from +1.9%. The pound has been gaining on expectations of strong growth and a number like this could be expected to maintain the momentum in the currency.
From US, we get the durable goods orders for December. Both the headline and the figure excluding transportation equipment are forecast to rise, but at a slower pace than in November. The S&P/Case-Shiller home price index for November is forecast to have risen a bit faster than in October. The Conference Board consumer confidence for January is forecast to fall slightly while the Richmond Fed manufacturing activity is estimated to remain unchanged. Net net, the figures as forecast would probably not give any new direction to trading, so we will be waiting to see any deviations from the forecasts.
We have only one speaker on the schedule on Tuesday. BoE Governor Mark Carney delivers a speech at an event in Scotland. He’s unlikely to say anything different than he said Friday in Davos, but he may comment on the market reaction to his Friday speech.
The Market EUR/USD
• EUR/USD failed once again to maintain above the 1.3700 (R1) resistance after the better-than-expected German Ifo indices. Both momentum studies moved lower, while the MACD, although in a bullish territory, crossed below its signal line, confirming the weakness of the longs to overcome the 1.3700 (R1) hurdle, for now. On the daily chart, we can identify a shooting star and a clear dip below 1.3650 (S1) may confirm the candlestick pattern and we might experience extensions towards the support area between 1.3525 (S3) and 1.3570 (S2). On the other hand, a successful break above 1.3700 (R1) may open the way towards 1.3810 (R2).
• Support: 1.3650 (S1), 1.3570 (S2), 1.3525 (S3).
• Resistance: 1.3700 (R1), 1.3810 (R2), 1.3893 (R3).
EUR/JPY
• EUR/JPY consolidates between the support of 139.67 (S1) and the resistance of 140.88 (R1). A clear violation below the 139.67 (S1) barrier may trigger extensions towards the next hurdle at 138.00 (S2). The 50-period moving average crossed below the 200-period moving average and since the latter is trading within the purple downward sloping channel, the short-term outlook remains to the downside. The RSI found support near its 30 level, while the MACD oscillator, although in its negative area, seems ready to cross above its trigger, thus we may experience a corrective advance before the bears prevail again. On the daily and weekly charts, the longer-term uptrend is still in progress and I would consider the short-term decline as a retracement of the major upward path, at the moment.
• Support: 139.67 (S1), 138.00 (S2), 137.10 (S3).
• Resistance: 140.88 (R1), 143.15 (R2), 145.00 (R3).
GBP/USD
• GBP/USD moved higher on Monday, after finding support slightly above the 1.6465 (S1) barrier. The pair is now heading towards the resistance of 1.6640 (R1), the violation of which may open the way towards the obstacle of 1.6735 (R2). The MACD oscillator, already in a bullish territory, seems ready to cross above its trigger line, confirming the recent positive momentum. As long as the rate is trading above both the moving averages and the blue short-term support line, I see a positive picture.
• Support: 1.6465 (S1), 1.6335 (S2), 1.6260 (S3).
• Resistance: 1.6640 (R1), 1.6735 (R2), 1.6885 (R3).
Gold
• Gold moved lower on Monday and is once again below the resistance of 1268 (R1). The metal is now testing the area near the longer-term trend line, the 50-period moving average and the support at 1257 (S1). A rebound there will confirm the expected pullback and drive once again the action above 1268 (R1). The picture remains positive since the precious metal is printing higher highs and higher lows and is trading above both the moving averages. Only a break below the previous low of 1235 (S1) may change the outlook.
• Support: 1257 (S1), 1235 (S2), 1224 (S3).
• Resistance: 1268 (R1), 1290 (R2), 1315 (R3).
Oil
• WTI continued moving lower yesterday but the decline was halted by the blue support line and both the moving averages. The probability for a higher low still exist and a rebound followed by a break of the 96.50 (R1) resistance barrier may target the recent high at 97.85 (R2). Nonetheless, both momentum studies are pointing downwards with the MACD lying below its signal line. A clear dip below the 95.00 (S1) support may be a first indication that the recent advance has reached its end. I remain neutral for now until both the price action and the oscillators give indications in the same direction.
• Support: 95.00 (S1), 94.00 (S2), 93.30 (S3).
• Resistance: 96.50 (R1), 97.85 (R2), 98.90 (R3).
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