IronFX - Market Analysis - page 31
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
Market Analysis 09/05/2014
Language English
Promises, promises ECB President Draghi repeated his recent tactic of holding out the promise of action in the future. This time however he upped the ante significantly, with comments such as “the Council is comfortable with acting in June” and “the euro exchange rate is a serious concern.” While we have heard him assert many times before the Council’s readiness to act, this time he has willingly painted himself into a corner: if the inflation forecasts are revised down next month (as seems likely, following the European Commission’s downward revisions) and the ECB doesn’t act, then Draghi will lose all credibility.
The question then becomes what the ECB does. In my recent piece (“ECB: The Options”) I reviewed the possible steps that they can do and concluded that while there are steps they can take, none of them are game-changers like the Bank of Japan’s “quantitative and qualitative easing” that sent the yen down 30% in a matter of weeks. The structure of the Eurozone financial system simply doesn’t allow them to take large-scale measures like the Fed or BoJ did. I expect that they will take some modest steps, such extending its full allotment operations or lowering the refi rate to zero and instituting a negative deposit rate, but the recent experience of Denmark shows that even slightly negative interest rates don’t necessarily cause a major move in a currency. Of course a negative refi rate might be a different matter, but it’s inconceivable that they would start off with such a radical measure.
USD also gained overnight vs AUD after the Reserve Bank of Australia’s quarterly monetary policy statement said that interest rates will remain on hold for the foreseeable future amid a fall in mining investment. Inflation will remain within its 2%-3% target, growth will be below trend and spare capacity remains in the labor market. I believe it’s only a matter of time before the RBA once again starts trying to jawbone the currency down as well. Although NZD is even more overvalued than AUD according to some (but not all) measures, I think given the weaker Australian economic fundamentals, AUD/NZD is likely to decline further.
Just to show how much the currency picture has changed recently: Turkey and South Africa had to hike rates back in January to defend their currencies; yesterday their currencies made new highs for the year against the dollar. USD/MXN also hit a 2014 low. These EM currencies are still far from pre-tapering levels but clearly the trend has shifted as investors seek out anything that has yield. Spanish and Italian bond yields hit record lows, while the average for all the peripheral countries – Greece, Ireland, Italy, Portugal and Spain – hit the lowest level since the formation of the euro. Carry seems to be one of the main themes of the market and is likely to continue to be in favor, so long as there is no major upheaval from Ukraine.
The best performing G10 currency overnight was CAD, which jumped after Canadian housing starts surged to a 195k annual pace in April from a sluggish 157k pace in March (probably depressed by unseasonably cold weather). House prices only rose 1.6% yoy in the month, a slight acceleration from 1.5% yoy in the previous month. But it appears that many algorithmic traders are short EUR/CAD and were scurrying to cover their positions as EUR/CAD approached and then broke through 1.50. The market is also contemplating the possibility that today’s employment data could beat expectations. (Market consensus is for the unemployment rate to stay unchanged at 6.9% while the net change in employment falls to 13.5k from 43k in March.) Today will be an interesting day for CAD in that normally the Canadian employment data is released at the same time as the US payroll data and so it’s difficult to parse the impact of this indicator alone on CAD.
During the European day, Sweden’s unemployment rate is forecast to have declined to +4.2% in April from +4.3% in February. Both Germany’s current account and trade surpluses are forecast to have risen in March, while Italy’s industrial production for the same month is forecast to have risen after declining in February. Neither indicator is usually that market-affecting. In Norway, both the headline and the underlying CPI rates are forecast to have declined in April, which could reverse some of NOK’s gains.
In the UK, industrial production for March is expected to have declined 0.2% mom after rising 0.9% mom in February, while the nation’s trade deficit for the same month is estimated to be more or less unchanged.
The US publishes the Job Opening and Labor Turnover Survey (JOLTS) report for March. While not necessarily market affecting, it is worth noting as an indicator of the flip side of the labor market from the employment data: demand for labor, as opposed to the usual measure of supply.
We have two speakers scheduled on Friday: Dallas Fed President Richard Fisher and ECB Governing Council member Erkki Liikanen.
Currency Titles:
EUR/USD falls on Draghi’s comments
USD/JPY rebounds again from 101.50
Draghi pushes EUR/GBP below 0.8200
Gold moves in a consolidative mode
Oil meets support at 99.85
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/9may2014/EURUSD_09May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/9may2014/USDJPY_09May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/9may2014/EURGBP_09May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/9may2014/XAUUSD_09May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/9may2014/CLM4_09May2014.PNG
Currencies Text:
EUR/USD rose to 1.3993 (R3) as ECB President Draghi’s presented the official statement following the Council meeting yesterday, in which he reiterated that inflation expectations remain firmly anchored and that inflation will gradually rise in 2015. Nonetheless, it fell sharply during the Q&A after he said that policy makers were comfortable with taking additional action in June if needed. At the time of writing the pair is trading near the 200-period moving average, slightly above the 1.3815 (S1) support barrier, while the MACD entered its negative territory, confirming yesterday’s bearish momentum. However, I would keep a neutral stance for now since a break below the 1.3790 (S2) strong support is needed to trigger further bearish extensions and could pave the way towards the lows of 1.3695 (S3), in my view.
• Support: 1.3815 (S1), 1.3790 (S2), 1.3695 (S3).
• Resistance: 1.3900 (R1), 1.3950 (R2), 1.3993 (R3).
USD/JPY met once again support at 101.50 (S1) and moved slightly higher. Considering the upside path of both our momentum studies, I would expect the rate to continue the upside wave and challenge once again the resistance bar of 102.00 (R1). Nonetheless, as long as the rate remains below the key bar of 102.00 (R1) and below both the moving averages I would consider the picture to be mildly bearish. A dip below the support of 101.50 (S1) would confirm a forthcoming lower low and may see the following bar at 101.25 (S2).
• Support: 101.50 (S1), 101.25 (S2), 100.75 (S3).
• Resistance: 102.00 (R1), 102.70 (R2), 103.00 (R3).
EUR/GBP followed a similar path as EUR/USD and after finding resistance near the upper boundary of its recent sideways path, declined to break below 0.8200, the floor of the range. Such a break turns the bias to the downside and I would expect the rate to challenge the support of 0.8155 (S1). The MACD fell below both its trigger and zero lines, indicating bearish momentum, but the RSI met support at its 30 bar. Thus some consolidation or a bounce seems possible before the development of further declines. A dip below the 0.8155 (S1) bar could pave the way towards the next one at 0.8080 (S2).
• Support: 0.8155 (S1), 0.8080 (S2), 0.8035 (S3).
• Resistance: 0.8200 (R1), 0.8246 (R2), 0.8285(R3).
Gold moved in a consolidative mode remaining above the prior blue downtrend line. I would maintain my neutral stance, since the possibility for a higher low still exists. A rebound above the aforementioned trend line may challenge once again the 1305 (R1) obstacle. On the other hand a dip below 1280 (S1) could extend the decline towards 1268 (S2). Relying on our momentum studies does not seem a solid strategy since the MACD remains below both its trigger and zero lines, while the RSI seems ready to start moving higher.
• Support: 1280 (S1), 1268 (S2), 1250 (S3).
• Resistance: 1305 (R1), 1315 (R2), 1330 (R3).
WTI met resistance at 100.90 (R1), near the 38.2% retracement level of the 16th April-1st March decline, and moved lower to find support at 99.85 (S1). Both our momentum studies remain above their blue support lines, however, I would maintain my neutral view since a move above 100.90 (R1) is needed to revive the bullish case and may pave the way towards the next resistance at 102.00 (R2). On the downside, a dip below 99.85 (S1) could challenge once again the key support of 98.85 (S2).
• Support: 99.85 (S1), 98.85 (S2), 98.00 (S3).
• Resistance: 100.90 (R1), 102.00 (R2), 103.00 (R3).
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/9may2014/benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/9may2014/table.PNG
currency tags:
EUR
More...
Market Analysis 12/05/2014
Language English
EUR/USD continues to move lower After a long long time when EUR/USD seemed to be stuck at the 1.38 level, on Friday the market continued to feel the reverberations from Thursday’s ECB press conference and EUR/USD continued to move lower. The pair is opening today in Europe below 1.38 for only the second time since 9 April.
ECB Council member Erkki Liikanen Friday confirmed that ECB President Draghi’s comments at last week’s press conference reflect the bank’s “common view.” It was notable though that Draghi’s view was expressed mostly during the Q&A session, not in the official statement. It could be that he was overstating the Council’s view in an effort to keep ratcheting up the talk and so keep EUR/USD from breaking over 1.40. While the statement following the meeting asserted that “The Governing Council is unanimous in its commitment…to cope effectively with risks of a too prolonged period of low inflation,” there may be some disagreement among the members as to whether June is too early to move. In that respect, one focus of the markets this week will be the many ECB officials scheduled to speak: ECB Vice President Constancio and Council Member Nowotny today; Executive Board Member Lautenschlaeger and Council Member Weidmann on Tuesday; Weidmann again and Executive Board member Mersch on Wednesday; Constancio again on Thursday; and Mersch again and ECB Council member Coeure on Friday. Weidmann will probably be the most closely scrutinized speaker. As the hawkish representative of Germany’s Bundesbank, there’s nobody to the right of him. If he agrees, then everyone probably agrees.
Personally, I expect that they will echo Draghi and that EUR/USD is likely to continue to move lower. Positioning in EUR remains relatively high – Friday’s Commitment of Traders report put speculative holdings of EUR at 32.6k contracts, the 87th percentile over the last two years and 82nd percentile over the last five years. I expect the market to lighten up further and for EUR/USD to decline.
The dollar’s strength against EUR is translating into dollar strength all around. The US currency is opening in Europe above its Friday opening levels against all the other G10 currencies and most of the EM currencies that we track.
The other main event this week will be on Wednesday, when the Bank of England releases its inflation report. The February inflation report set out the form that the Bank’s monetary policy would take as the economy recovered and unemployment fell below the 7% threshold that Bank of England Governor Carney set under the first stage of his forward guidance policy. The focus was on spare capacity, which at the time the MPC estimated to be around 1%-1 ½% of GDP. Investors will want to see whether the Committee has changed its view on the degree of spare capacity in the economy. The UK unemployment rate for March, also coming out Wednesday, is expected to decline to 6.8% from 6.9%, further below the 7% threshold. This continued fall is particularly significant as the MPC said spare capacity is concentrated in the labor market. If they reduce their assessment of spare capacity, then investors are likely to bring forward their estimate for when UK rates will start to rise. GBP could break through the 1.70 barrier in such a case. Here though positioning works against the direction – speculators hold 40.6k GBP contracts, the 98th percentile over the last five years. They will need strong incentives to add to those positions. The technical picture for GBP is also difficult (see below).
During the Asian morning, Japan’s current account deficit (seasonally adjusted) widened more than expected to JPY 783bn in March vs an expected JPY 546bn (February: JPY 41bn surplus). This was way worse than the record deficit of JPY 588bn recorded in January. March was unusual in that Japanese companies may have diverted goods from the export market to the domestic market to satisfy the rush before the imposition of the consumption tax. That probably explains why USD/JPY is only slightly higher following the news. Figures released today also showed that Japanese investors sold a net JPY 1.96tn in foreign bonds in March, including a record amount of EUR-denominated bonds as the Ukraine crisis worsened. Given that it hasn’t gotten any better, we can assume that repatriation is continuing, helping to shore up the yen temporarily. I expect the money to flow out again at some point as the yield gap remains wide and Japanese stocks continue to decline. Together with the worsening current account position, this largely explains my bearish JPY view.
There are no major economic indicators coming out today. In addition to the ECB speakers, Philadelphia Fed President Charles Plosser will also speak today.
The rest of the week is much busier. On Tuesday, the main event will be the German ZEW survey for May. We also get April CPI data from Sweden and Italy, and the US retail sales for the same month. We also get final April CPI figures from France and Germany and Eurozone’s industrial production for March. Thursday is a GDP day. We get preliminary GDP figures from Japan, France, Italy, Germany and Eurozone as a whole. From Eurozone, we also have the final CPI from April. We also get the US CPI for April. Finally on Friday, during the Asian morning, Federal Reserve Chair Janet Yellen speaks to the US Chamber of Commerce and the US Small Business Administration as part of the National Small Business Week. In the US, housing starts and building permits for April are due out alongside the preliminary UoM consumer sentiment for May.
Currency Titles:
EUR/USD keeps falling.
EUR/JPY exits its sideways path.
GBP/USD is back below 1.6900
Gold continues consolidating
Oil meets once again the support of 99.85
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/12may2014/EURUSD_12May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/12may2014/EURJPY_12May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/12may2014/GBPUSD_12May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/12may2014/XAUUSD_12May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/12may2014/CLM4_12May2014.PNG
Currencies Text:
EUR/USD continued falling on Friday, breaking two support barriers in a row. Since the bears managed to violate the 1.3790 bar, I would expect them to push the rate lower and challenge the support of 1.3695 (S1). The MACD remains below both its trigger and zero lines, confirming the negative momentum of the pair. However, the RSI seems ready to exit oversold conditions, thus I would expect an upside corrective wave before the continuation of the decline. On the daily chart we can identify negative divergence between the daily MACD and the price action, while on the weekly chart, we see a bearish engulfing candle formation, increasing the possibilities for further declines.
• Support: 1.3695 (S1), 1.3650 (S2), 1.3600 (S3).
• Resistance: 1.3790 (R1), 1.3815 (R2), 1.3900 (R3).
EUR/JPY fell below 141.00, the lower boundary of its recent sideways path, and found support at the 140.00 (S1) area. The short-term outlook has now turned negative and a clear dip below that bar may pave the way towards the lows of 139.15 (S2). Considering that the RSI met support at its 30 level and moved higher, I would expect an upside corrective wave before the bears prevail again. On the daily chart, the MACD obtained a negative sign, turning the momentum to the downside.
• Support: 140.00 (S1), 139.15 (S2), 137.55 (S3).
• Resistance: 141.00 (R1), 142.40 (R2), 143.40 (R3).
GBP/USD fell below the blue short-term trend line, but the decline was halted at the support bar of 1.6840 (S1). The MACD lies below both its trigger and zero lines confirming the recent bearish momentum, but the RSI exited its oversold zone. Thus, some consolidation or a test near the 1.6900 (R1) cannot be ruled out. On the daily chart, the rate remains within the purple upward sloping channel, keeping the long-term path to the upside, but on the weekly chart we can identify a shooting star formation, favoring further declines. All the above give a mixed picture for the currency pair, thus I would keep a neutral stance for now.
• Support: 1.6840 (S1), 1.6770 (S2), 1.6700 (S3).
• Resistance: 1.6900 (R1), 1.7000 (R2), 1.7100 (R3).
Gold continued its consolidative move remaining above the prior blue downtrend line. I would maintain my neutral stance, since the possibility for a higher low still exists. A rebound above the aforementioned trend line may challenge once again the 1305 (R1) obstacle. However, only a break above the resistance of 1315 (R2) will confirm a forthcoming higher high. This could turn the picture back to the upside and perhaps target the 1330 (R3) hurdle. The MACD, although in its bearish territory, seems ready to cross above its trigger line, favoring an upside wave.
• Support: 1280 (S1), 1268 (S2), 1250 (S3).
• Resistance: 1305 (R1), 1315 (R2), 1330 (R3).
WTI met resistance at 101.15 (R1) and then moved lower to reach once gain the 99.85 (S1) support bar. The price oscillates between those two barriers, while both our moving averages are pointing sideways. As a result, I would maintain my neutral view for now. Relying on our momentum studies does not seem a solid strategy since the RSI lie near its neutral level pointing sideways, while the MACD fell below its trigger line and is now pointing down. A break above the 101.15 resistance could revive the bullish case and may target the resistance of 102.00 (R2), while a dip below 99.85 (S1) may see the lows of 98.85 (S2).
• Support: 99.85 (S1), 98.85 (S2), 98.00 (S3).
• Resistance: 100.15 (R1), 102.00 (R2), 103.00 (R3).
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/12may2014/benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/12may2014/table.PNG
currency tags:
EUR
More...
Market Analysis 13/05/2014
Language English
Market is becalmed It’s hard to write about what’s moving a market that’s not moving. After the ECB shock last week, EUR/USD seems to have found an equilibrium level – the range yesterday was 0.19%, less than one-third of the average of 0.62% for the last year. Even GBP/USD, where investors are positioning ahead of tomorrow’s Inflation Report, saw a range of 0.37%, vs an average of 0.64%. Similar with USD/JPY, where the range was less than half the average (and that was the G10 pair with the biggest move!). The collapse in volatility echoes what’s going on in stocks, where the VIX index is again approaching its post-crisis lows set back in March. But at least the stock market is seeing changes in price as the S&P 500 and DJIA hit record highs.
The crisis in Ukraine pushed up the precious metals slightly – silver far more than gold – but the market overall continues to treat it as a non-event even as EU foreign ministers add more Russian officials to the list of people with sanctions. The action was in copper, which rallied on news that China would take some steps to liberalize its financial markets, and of course nickel, which continues to gain on fears of supply shortages from Indonesia.
During the European day, the main event will be the German ZEW survey for May. The current situation index is forecast to have risen to 60.5 from 59.5, while the expectations index is expected to have declined to 40.0 from 43.2. Last month the common currency fell slightly on a decline in the expectations index. Thus a further decline in the index may weigh on the euro, which is already under pressure after last week’s plunge. EUR/USD tends to move about ±0.1% in the 30 minutes after the index is released, with the direction of course depending on the direction of the surprise. Sweden’s CPI for April is expected at -0.1% yoy from -0.6% yoy in March.
Australian Treasurer Joe Hockey announces the 2014/15 budget today, which is expected to implement various austerity measures in order to trim the AUD 30bn deficit. As the Australian economy is being hit by slowing demand in China at the same time, adding domestic austerity on top of weak external demand suggests that the Reserve Bank of Australia may have to keep rates low for longer than it would have otherwise. Thus the budget could be negative for the AUD.
From the US, we get retail sales for April. The headline figure is estimated to have slowed to +0.4% mom from +1.2% mom, while the closely watched retail sales excluding the volatile items of auto and gasoline is forecast to have slowed to +0.5% mom from +1.0% mom. The forecasts are skewed to the downside, with the average forecasts for both below the median forecasts. This suggests many analysts believe the impact from improving weather that has caused many indicators recently to surprise on the upside is fading. Almost 70% of US economic indicators over the past eight weeks have beaten estimates, according to the Westpac US Positive Surprise index (although past performance is no guarantee of future performance, as always). Positive surprises tend to have a slightly bigger impact on the market with this indicator than negative surprises; looking over the last year, on average USD/JPY was up 0.23% 30 minutes after a positive surprise but down only 0.14% on a negative surprise.
In Canada, the Bank of Canada publishes the spring edition of its review, with articles on the use of the Canadian dollar as a reserve currency and an assessment of Canadian and the US labor markets.
We have two ECB and two Fed speakers scheduled on Tuesday. ECB Executive Board member Sabine Lautenshlaeger and ECB Governing Council member Jens Weidmann speak at an event. Weidmann’s comments will be important after two ECB officials speaking yesterday, ECB Governing Council member Ewald Nowotny and ECB Vice President Vitor Constancio, both said it was too early to speculate about any ECB action in June. Atlanta Fed President Dennis Lockhart and Richmond Fed President Jeffrey Lacker will also speak.
Currency Titles:
EUR/USD pauses its decline
USD/JPY is back above 102.00
Is EUR/GBP going below 0.8100?
Gold rebounds
Oil remains within a range
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/13may2014/EURUSD_13May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/13may2014/USDJPY_13May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/13may2014/EURGBP_13May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/13may2014/XAUUSD_13May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/13may2014/CLM4_13May2014.PNG
Currencies Text:
EUR/USD moved in a consolidative mode, remaining below the 1.3790 (R1) hurdle. I still expect the bears to push the rate lower and challenge the support of 1.3695 (S1). However, the RSI is trying to move higher, out of its oversold zone, while the MACD shows signs of bottoming and seems ready to cross above its signal line. Thus, I would expect further consolidation or an upside corrective wave before the continuation of the decline. On the daily chart we can identify negative divergence between the daily MACD and the price action, while on the weekly chart, we see a bearish engulfing candle formation, increasing the possibilities for further declines.
• Support: 1.3695 (S1), 1.3650 (S2), 1.3600 (S3).
• Resistance: 1.3790 (R1), 1.3815 (R2), 1.3900 (R3).
USD/JPY rebounded from the 101.50 (S2) support zone and moved higher to overcome the 102.00 barrier. Both our momentum studies continue their upside path and if the bulls are willing to maintain the positive momentum, we may see them targeting the 102.70 (R1) resistance hurdle. However, since we cannot identify a clear trending structure on the short-term horizon, I would consider the overall picture of the pair to remain neutral. On the daily chart, the MACD remains near its neutral level, confirming the trendless mode of the rate.
• Support: 102.00 (S1), 101.50 (S2), 101.25 (S3).
• Resistance: 102.70 (R1), 103.00 (R2), 103.40 (R3).
EUR/GBP moved lower and managed to break below the 0.8155 hurdle. If the rate closes the day below that bar, I would expect such a move to carry larger bearish implications and pave the way towards the support of 0.8080 (S1). The 50-period moving average remains below the 200-period one and they both point down and as long as the rate is printing lower highs and lower lows below the moving averages, I see a negative short-term picture.
• Support: 0.8080 (S1), 0.8035 (S2), 0.8000 (S3).
• Resistance: 0.8155 (R1), 0.8200 (R2), 0.8246 (R3).
Gold moved higher to find resistance slightly below the 1305 (R1). Such a move confirms a higher low and if the bulls are strong enough to violate the aforementioned resistance, I would expect them to target the next one at 1315 (R2). However, only a break above the resistance of 1315 (R2) will confirm a forthcoming higher high. This could turn the picture back to the upside and perhaps target the 1330 (R3) hurdle. Relying on our momentum studies does not seem a solid strategy for now, since the MACD remains above its signal line, but the RSI is pointing down.
• Support: 1280 (S1), 1268 (S2), 1250 (S3).
• Resistance: 1305 (R1), 1315 (R2), 1330 (R3).
WTI rebounded once again from the support of 99.85 (S1), but remained between that bar and the resistance of 101.15 (R1). I would maintain my neutral view since both the moving averages are pointing sideway, while the daily RSI and the daily MACD lie near their neutral levels. A break above the 101.15 (R1) could revive the bullish case and may target the resistance of 102.00 (R2), while a dip below 99.85 (S1) may see the lows of 98.85 (S2).
• Support: 99.85 (S1), 98.85 (S2), 98.00 (S3).
• Resistance: 100.15 (R1), 102.00 (R2), 103.00 (R3).
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/13may2014/benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/13may2014/table.PNG
currency tags:
EUR
More...
Market Analysis 14/05/2014
Language English
The real thing? The euro came under pressure Tuesday on a report in the Wall Street Journal that the Bundesbank is willing to back an array of stimulus measures from the ECB, including negative rates on bank deposits, long-term loans to banks at capped interest rates (fixed-rate, full allotment operations) and purchases of packaged bank loans, if the revised ECB staff inflation projections for 2016 in June support the case. The article also detailed the Bundesbank’s limits, such as it remains opposed to quantitative easing. EUR/USD briefly fell below 1.37 for the first time since April 7th but found support near the 1.3700 zone after US retail sales slowed more than anticipated in April, while the closely watched retail sales excluding the volatile items of autos and gasoline declined, missing expectations of a rise. The market is generally long EUR and so should find it easy to sell, except people have been burned so many times by thinking the euro was headed lower only to find it bouncing back. On the other hand, few people are willing to pick a bottom when it looks as if this may be the real thing with regards to a change in sentiment at the ECB. For now the market may now be targeting 1.3675, which would be the 61.8% retracement level of the 3 Feb-8 May advance from 1.3475 to 1.3993.
The highlight during the European day today will be the Bank of England’s quarterly inflation report. In February, the Bank moved to a broader guidance framework. As we mentioned on Monday, the key point that the Monetary Policy Committee is focusing on now is spare capacity, which at the time the MPC estimated to be around 1%-1 ½% of GDP. Investors will want to see whether the Committee has changed its view on the degree of spare capacity in the economy. The UK unemployment rate for March, also coming out Wednesday, is expected to decline to 6.8% from 6.9%, further below the 7% threshold. Both the average weekly earnings and the employment change for March are also forecast to have accelerated. These developments are particularly significant as the MPC said spare capacity is concentrated in the labor market. If they reduce their assessment of spare capacity, then investors are likely to bring forward their estimate for when UK rates will start to rise. That could push up GBP. However, the news may already be in the market, as GBP/USD has actually been falling since last Thursday. Positioning in GBP remains quite high and so the hurdle for investors to add to those positions could be quite high too. The market may be waiting to get the Bank of England MPC minutes a week from today to learn more precisely what the MPC members are thinking. The technical picture is neutral (see below).
In Eurozone, France’s CPI is expected to have accelerated to +0.9% yoy in April from +0.7% yoy in March. Germany’s final CPI for the month is also coming out and as usual, the forecast is the same as the initial estimate. Eurozone’s industrial production for March are estimated to have declined, after rising in February.
In the US, we get the PPI data for April. The growth in core PPI excluding food and energy is forecast to have slowed to +0.2% mom from +0.6% mom.
We have two ECB speakers on the European agenda. ECB Executive Board member Yves Mersch and ECB Council member Jens Weidmann speak at the WELT Currency conference. It will be interesting to see if we get any more revelations about the Bundesbank’s thinking. Is it just a coincidence that yesterday’s revelation about the Bundesbank’s support for the ECB from an anonymous authoritative source came on the same day as Mr. Weidmann was making a speech? Perhaps more anonymous comments will appear by magic today, too.
Currency Titles:
Is EUR/USD ready for a corrective wave?
EUR/JPY touches again the psychological 140.00 level
GBP/USD mixed ahead of BoE inflation report
Gold consolidates again
Oil meets 102.00
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/14may2014/EURUSD_14May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/14may2014/EURJPY_14May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/14may2014/GBPUSD_14May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/14may2014/XAUUSD_14May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/14may2014/CLM4_14May2014.PNG
Currencies Text:
EUR/USD fell again, after consolidating for a while below the 1.3790 (R2) resistance bar. The pair met support at 1.3695 (S1), where a clear dip may see the next hurdle at 1.3650 (S2). Nonetheless, considering that the RSI is trying again to exit its oversold territory, I would expect the forthcoming wave to be an upside retracement, maybe to test the 1.3745 (R1) resistance before the bears take control again. The 50-period moving average fell below the 200-period moving average, confirming the negative picture of the pair. On the daily chart we can identify negative divergence between the daily MACD and the price action, while on the weekly chart, we see a bearish engulfing candle formation, increasing the possibilities for further declines.
• Support: 1.3695 (S1), 1.3650 (S2), 1.3600 (S3).
• Resistance: 1.3745 (R1), 1.3790 (R2), 1.3815 (R3).
EUR/JPY declined after finding resistance a few pips below the 141.00 (R1) resistance and found once again support at the 140.00 (S1) area. A dip below that bar could pave the way towards the next support of 139.15 (S2). The RSI remains below its downward sloping resistance line, while the MACD lies within its negative territory, confirming the recent bearish momentum. However, since we can identify positive divergence between the RSI and the price action, I would expect another upside corrective wave, maybe for another test at the 141.00 (R1) zone.
• Support: 140.00 (S1), 139.15 (S2), 137.55 (S3).
• Resistance: 141.00 (R1), 142.40 (R2), 143.40 (R3).
GBP/USD met resistance at 1.6900 (R1) and moved lower to find support at the 1.6820 (S1) bar. The MACD lies below both its trigger and zero lines confirming the recent bearish momentum, but the RSI rebounded from its 30 level and moved higher Thus, another test near the 1.6900 (R1) area cannot be ruled out. On the daily chart, the rate remains within the purple upward sloping channel, keeping the long-term path to the upside, but on the weekly chart we can identify a shooting star formation, favoring further declines. Also, much of today’s directional movement will depend on the BoE quarterly inflation report. All the above give a mixed picture for the currency pair, thus I would keep a neutral stance for now.
• Support: 1.6820 (S1), 1.6770 (S2), 1.6700 (S3).
• Resistance: 1.6900 (R1), 1.7000 (R2), 1.7100 (R3).
Gold moved once again in a consolidative mode, remaining below the 1305 (R1) resistance barrier. The picture remains neutral, since only a move above the resistance of 1315 (R2) will confirm a forthcoming higher high. This could turn the picture back to the upside and perhaps target the 1330 (R3) hurdle. Both the moving averages continue to point sideways, while our momentum studies moved near their neutral levels, confirming yesterday’s non-directional movement.
• Support: 1280 (S1), 1268 (S2), 1250 (S3).
• Resistance: 1305 (R1), 1315 (R2), 1330 (R3).
WTI moved higher, breaking above 101.15 and reached the 102.00 (R1) resistance, after the American Petroleum Institute reported yesterday that crude inventories fell by 590k barrels last week. The 102.00 (R1) bar coincides with the 61.8% retracement level of the 16th Apr. - 1st May decline and at the time the price touched it, the RSI tested its 70 level. Thus, we need to see if the bulls are strong enough to overcome that strong support zone before expecting extensions towards the 103.00 (R2) resistance level.
• Support: 101.15 (S1), 99.85 (S2), 98.85 (S3).
• Resistance: 102.00 (R1), 103.00 (R2), 104.10 (R3).
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/14may2014/benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/14may2014/table.PNG
currency tags:
EUR
More...
Market Analysis 15/05/2014
Language English
Bond markets take center stageThe action yesterday was in global bond markets as yields in the UK, Germany and the US slid to 2014 lows. The Bank of England’s inflation report was less hawkish than many had expected. The inflation forecasts made on the basis of market interest rates showed inflation slightly below target in two to three years’ time, which suggests that the Bank has room to raise rates at a slower pace than the market expects. UK bond yields fell across the curve as a result (10-year yields down a sharp 10 bps), and as for GBP/USD, the assault on 1.70 is on hold for now, although the technical picture still looks bullish; see below for EUR/GBP.
On the Continent, both core and peripheral bond yields fell as the market continued to price in an easing of monetary policy at next month’s ECB meeting. ECB Executive Board member Yves Mersch yesterday confirmed that ECB President Draghi’s comment about the ECB being “comfortable” moving in June was a coded statement meant to convey to the market that a change in policy was imminent, while Executive Board member Praet told Die Zeit that the ECB is considering a range of policy measures including new long-term refinancing operations (LTROs) and cutting rates into negative territory. Ten-year Bund yields declined by 5 bps to the lowest level since the talk of the Fed “tapering” began last year.
Even US bond yields joined in the global rally despite US producer price inflation hitting a two-year high in April. The 10-year note was down 7 bps while Fed Funds expectations collapsed 7.5 bps in the long end.
The FX implications of this global bond market rally are clear: carry is king and EM currencies should be doing better as the rally take the pressure off these countries to raise rates. For example, RUB was the biggest gainer over the last 24 hours despite the worsening situation in the Ukraine, which the Russian Foreign Minister has characterized as “as close to civil war as you can get,” which doesn’t seem like an exaggeration. In the EM space this would tend to favour TRY, RUB, INR, IDR, ZAR, BRL, although clearly there is more than just interest rates to worry about here; TRY was the weakest of the EM currencies we track over the last 24 hours, while I would not recommend RUB at this time for obvious reasons. In DM, NZD, AUD and NOK would tend to be the beneficiaries of increased emphasis on carry, although personally I question the sustainability of any AUD rally.
On Thursday, during the Asian morning, Japan started off a round of GDP announcements. Its preliminary GDP for Q1 accelerated to +1.5% qoq from +0.2% qoq, exceeding even the optimistic consensus forecast of +1.0%, but this was no doubt distorted by the impact of the hike in the consumption tax, which caused an increase in retail sales and a drop in exports. The run-up in consumer spending and capital investment ahead of the tax hike were more than expected; we now have to see whether those jumps simply brought forward spending ahead of the tax hike or represent a sustainable increase in demand. The market is predicting the former, as forecasts for Q2 GDP are for a 3.3% contraction.
During the European day, more GDP data are coming out from France, Italy, Germany and the Eurozone as a whole. Eurozone’s preliminary GDP is expected to have accelerated to +0.4% qoq in Q1 from +0.2% qoq in Q4, driving the yoy rate up to +1.1% from +0.5%. Eurozone’s final CPI for April is also coming out, to confirm the initial estimate of +0.7% yoy. Moreover, the ECB publishes its monthly report, together with its survey of professional forecasters on inflation. Much of the data, particularly commodity prices, suggests inflation forecasts should be unchanged to higher, so if forecasts are instead lowered, it would tell the ECB that inflation expectations have declined. That would be a strong signal to the Council that they need to take some action.
There is a lot of data coming out from the US. The headline CPI is forecast to have accelerated to +2.0% yoy in April from +1.5% yoy, which should be bullish USD as it makes it more likely that the hawks at the Fed will argue for early tightening (although remember that this is not the measure of inflation that the Fed targets – the Fed targets the personal consumption expenditure deflator, which is running around 1.1% yoy). The Empire State manufacturing survey for May is forecast to have risen, while the Philadelphia Fed business activity index is forecast to have declined, so the impact of these two may offset each other. Initial jobless claims for the week ended on May 10 are expected to be more or less the same as the previous week. Industrial production is forecast to have remained unchanged mom in April after rising +0.7% mom in March.
We have three speakers on Thursday. During the Asian morning, Bank of Japan Governor Haruhiko Kuroda gives a speech at an event in Tokyo. As for the European day, ECB Vice President Vitor Constancio and ECB Executive Board member Yves Mersch will also speak.
Currency Titles:
EUR/USD consolidates above 1.3695
USD/JPY remains trendless
EUR/GBP higher after the BoE inflation report.
Gold above 1300 again
Is oil ready to pull back?
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/15may2014/EURUSD_15May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/15may2014/USDJPY_15May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/15may2014/EURGBP_15May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/15may2014/XAUUSD_15May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/15may2014/CLM4_15May2014.PNG
Currencies Text:
EUR/USD moved in a consolidative mode, remaining supported by the 1.3695 (S1) barrier. A clear dip below that support may see the next hurdle at 1.3650 (S2). Nonetheless, considering that the RSI exited its oversold territory and the MACD crossed above its trigger line, I would expect the forthcoming wave to be an upside retracement, maybe to test the 1.3745 (R1) resistance before the bears take control again. The 50-period moving average remains below the 200-period moving average, confirming the negative picture of the pair. On the daily chart, the negative divergence between the MACD and the price action is still in effect, while on the weekly chart, we see a bearish engulfing candle formation, increasing the possibilities for further declines.
• Support: 1.3695 (S1), 1.3650 (S2), 1.3600 (S3).
• Resistance: 1.3745 (R1), 1.3790 (R2), 1.3815 (R3).
USD/JPY met resistance at 102.35 (R2) and moved lower to trade below the 102.00 bar. The rate is back below both the moving averages, while both our momentum studies fell below their support lines. If the bears continue their momentum, they may challenge again the support of 101.50 (S1), where a dip could target the next support at 101.25 (S2). However, I would prefer to remain neutral on this currency pair since we do not have a clear trending structure. On the daily chart, both the daily RSI and the daily MACD remain near their neutral levels, confirming the trendless mode of the price action.
• Support: 101.50 (S1), 101.25 (S2), 100.75 (S3).
• Resistance: 102.00 (R1), 102.35 (R2), 102.70 (R3).
EUR/GBP rallied after the UK employment data for March and the BoE’s quarterly inflation report, where Governor Carney said slack remains in the economy. Nonetheless, since the rate remains below the blue downtrend line and the resistance of 0.8200 (R1), I still consider the downside path to remain intact. Considering that the MACD lies above its trigger line, although in bearish territory, I would expect the rate to meet resistance near the downtrend line below the 0.8200 (R1) bar. If the bears take control near that zone, I would expect them to challenge the 0.8130 (S1) support again.
• Support: 0.8130 (S1), 0.8080 (S2), 0.8035 (S3).
• Resistance: 0.8200 (R1), 0.8246 (R2), 0.8285 (R3).
Gold moved higher to challenge the resistance barrier of 1305 (R1). In early European trading the precious metal is consolidating near that level, where a clear upside move may see the next hurdle at 1315 (R2). Nonetheless, I still consider the overall picture of the metal to remain neutral since only a break above the resistance of 1315 (R2) would confirm a forthcoming higher high. This could turn the picture back to the upside and perhaps target the 1330 (R3) hurdle.
• Support: 1280 (S1), 1268 (S2), 1250 (S3).
• Resistance: 1305 (R1), 1315 (R2), 1330 (R3).
WTI moved above the 102.00 bar, but returned lower test it as a support. As long as the price is printing higher highs and higher lows above both the moving averages, the short-term picture remains positive and I would expect the bulls to target the 103.00 (R1) resistance in the near future. However, the MACD shows signs of topping, while the RSI exited overbought conditions. Thus we may experience a pullback below 102.00 (S1) before the bulls prevail again.
• Support: 102.00 (S1), 101.15 (S2), 99.85 (S3).
• Resistance: 103.00 (R1), 104.10 (R2), 105.00 (R3).
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/15may2014/benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/15may2014/table.PNG
currency tags:
EUR
More...
Market Analysis 16/05/2014
Language English
Return of risk premium Bonds were rallying on Wednesday, but there was a huge reaction in the opposite direction on Thursday in several markets. Lower-than-expected Q1 GDP growth figures for some of the peripheral European countries reminded people that a) the debt-to-GDP ratio of these countries is not necessarily improving, and b) peripheral Eurozone bonds at current levels have almost no risk premium built into them. In the shorter end of the market (5 years) Ireland was borrowing at lower rates than the UK and Spain at lower than the US! (albeit in different currencies). As I pointed out in an article for the CNBC web site (”New Greek bond says more about Germany than Greece,” 11 April, http://www.cnbc.com/id/101574949 ), if a country’s interest rate is higher than its growth rate, then the debt burden will grow as a percent of GDP. The country will have to run an ever-higher primary budget surplus in order to prevent the debt from snowballing. Apparently investors suddenly realized that this is still the case for the peripheral countries. Spain may have shown an acceleration in growth in Q1 but Portugal’s economy shrank 0.7% qoq and even several “core” countries did badly (Netherlands in particular with -1.4% qoq). This put a risk premium back into peripheral bonds and yields for some countries jumped nearly 20 bps. Bund yields on the other hand fell 6 bps in a flight to quality.
The risk premium returned in currencies as well and USD gained against most of the EM currencies that we track. TRY was the big loser as labor unions in Turkey went on strike to protest the mining disaster. HUF, ZAR and BRL were not far behind. The regional diversity of the losers shows that this is not necessarily contagion or due to Ukraine fears but rather is related to the specifics problems of each country. HUF for example fell after a statute was published that made it a legal obligation for the Hungarian central bank to support the government’s economic policies. The only EM currency to make a notable gain vs USD was INR, which rallied as the results of the vote started to come in and it appears that the BJP coalition is leading. Indian stocks jumped the most in five years on the news as well. I would be cautious about carry trades for the time being although with US 10-year yields now below 2.5%, probably greed will begin to outweigh fear again in a few days and investors will start to venture out again.
As for the G10 currencies, USD was higher against most except for JPY, which had a safe-haven bid to it. I think it’s significant that the dollar gained against most currencies on a risk-off day and with US interest rates falling. I think this shows confidence coming back to the US economy as US indicators are improving, and confidence coming back into the USD as a result. We may finally be seeing the start of the long-awaited (by me, at least) USD rally.
Fed Chair Janet Yellen spoke to the US Chamber of Commerce and the US Small Business Administration but made no new revelations about Fed policy.
The European day is relatively light as no major affecting news are coming out. In Europe, we only get Eurozone’s trade balance for March. The bloc’s trade surplus is forecast to have risen to EUR 16bn from EUR 13.6bn.
In the US, both the housing starts and building permits are forecast to have improved in April, while the University of Michigan preliminary consumer sentiment for May is estimated to rise to 84.5 from 84.1. More good US economic news, particularly about the housing market, would probably help the dollar to rally further, in my view.
Two more speakers follow Chair Yellen on Friday. The ECB Executive Member Benoit Coeure speaks at a conference, while the St. Luis Fed President James Bullard gives a presentation on the economy and monetary policy to the Arkansas Bankers Association.
Currency Titles:
EUR/USD rebounds from 1.3650
Is EUR/JPY ready for another dip?
GBP/USD remains mixed
Gold not choosing a direction
Oil pulls back
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/16may2014/EURUSD_16May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/16may2014/EURJPY_16May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/16may2014/GBPUSD_16May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/16may2014/XAUUSD_16May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/16may2014/CLM4_16May2014.PNG
Currencies Text:
EUR/USD fell below the 1.3695 hurdle on Thursday morning and reached our next barrier at 1.3650 (S2). However, the pair rebounded later in the day to trade again above 1.3695 (S1). Considering that the RSI moved higher after exiting oversold conditions, and that the MACD, although in its bearish territory, lies above its signal line, I would not rule out the continuation of the upside wave, maybe for a challenge near the 1.3745 (R1) zone. Nonetheless, I still consider the overall short-term outlook to be to the downside and yesterday’s advance to be a corrective wave. As a result, I would expect the bears to take control in the near future targeting once again the 1.3650 (S2) support level.
• Support: 1.3695 (S1), 1.3650 (S2), 1.3600 (S3).
• Resistance: 1.3745 (R1), 1.3790 (R2), 1.3815 (R3).
EUR/JPY fell below the psychological barrier of 140.00 and moved lower to meet our next support at 139.15 (S1). As long as the rate is printing lower lows and lower highs below both the moving average I see a negative picture. A clear dip below the 139.15 (S1) support could pave the way towards the hurdle of 137.55 (S2). On the daily chart, the daily MACD, left its neutral line and obtained a negative sign, confirming the recent bearish momentum of the pair and favoring the continuation of the decline.
• Support: 139.15 (S1), 137.55 (S2), 136.20 (S3).
• Resistance: 140.00 (R1), 141.00 (R2), 142.40 (R3).
GBP/USD fell below the 1.6820 barrier and moved lower to find support near the 1.6760 (S1) barrier, slightly above the lower boundary of the longer-term upward sloping channel, connecting the highs and the lows on the daily chart. The rate remains within the aforementioned channel, keeping the long-term uptrend intact, but if this week closes lower than Monday’s opening level, it will confirm the shooting star identified on the weekly chart and could trigger further declines. As a result, I would maintain my neutral view on the overall picture of the pair. Coming back to the 4-hour chart, the RSI rebounded from its 30 level, while the MACD, although in its negative territory, crossed above its trigger line, favoring an upside move for now.
• Support: 1.6760 (S1), 1.6700 (S2), 1.6600 (S3).
• Resistance: 1.6820 (R1), 1.6900 (R2), 1.7000 (R3).
Gold failed to maintain above 1300 and moved once again lower. The precious metal seems to prefer a sideways path between the support of 1280 (S1) and the resistance of 1315 (R2). Both our moving averages are pointing sideways, while both the daily MACD and the daily RSI lie near their neutral levels, confirming the trendless picture of the yellow metal. A break above 1315 (R2) is needed to turn the picture positive and could target the resistance of 1330 (R3), while a dip below 1280 (S1) may see the support of 1268 (S2).
• Support: 1280 (S1), 1268 (S2), 1250 (S3).
• Resistance: 1305 (R1), 1315 (R2), 1330 (R3).
WTI pulled back to trade once again below 102.00 but met support slightly above the 101.15 (S1) bar and is back for another challenge near the hurdle of 102.00 (R1). As long as WTI is printing higher highs and higher lows above both the moving averages, the uptrend remains intact. However, since both our momentum studies are still declining, with the MACD remaining below its trigger line, I would adopt a neutral stance for now until we have clearer indications about whether the uptrend is likely to continue.
• Support: 101.15 (S1), 99.85 (S2), 98.85 (S3).
• Resistance: 102.00 (R1), 103.00 (R2), 104.00 (R3).
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/16may2014/benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/16may2014/table.PNG
currency tags:
EUR
More...
Market Analysis 19/05/2014
Language English
Fed week: This week the focus will be on the Fed. That’s because on Friday, the New York Fed released its latest economic forecasts while the Philadelphia Fed released the 2Q Survey of Professional Forecasters (SPF). The NY Fed was pretty optimistic: it sees the unemployment rate finishing this year at 6.1% and next year at 5.4%, while the core PCE deflator should be 1.6% at the end of this year and 1.9%, just about at the Fed’s target, by end-2015. The professional forecasters estimated unemployment at 6.2% at the end of this year, but were much less optimistic than the Fed after that; they saw it averaging 5.6% in 2016 and 5.5% in 2017, above the NY Fed’s forecast for end-2015. The NY Fed projections are also optimistic relative to the FOMC. For example, the “central tendency” of the FOMC members for unemployment doesn’t hit the NY Fed’s 2015 target until a year later (5.2%-5.6%), while the core PCE forecast for next year is 1.6%-2.0% and 1.8%-2.0% in 2016. Naturally, the NY Fed’s forecasts stem from a prediction of stronger growth than either the professionals or the FOMC expect.
The question is whether these predictions will influence the thinking of the FOMC members and cause them to revise their forecasts. FOMC Chair Yellen for example apparently doesn’t see unemployment getting down that low for another year. On the other hand, the hawkish St. Louis Fed President Bullard, a non-voting member, said Friday that unemployment would probably fall below 6% by the end of this year, setting the stage for the first Fed tightening at the end of Q1 2015. That’s earlier than the market thinks; Fed Fund futures are currently predicting the Fed Funds rate (now around 0.09%) will be back up to the official target rate of 0.25% sometime around May or June of 2015 and the first hike, to 0.5%, will come in October.
We won’t have long to wait to find out what the Fed members think of these forecasts as there are a lot of them speaking this week, starting today. Former Fed Chairman Ben Bernanke will appear in a moderated conversation with the former White House Chief of Staff, while San Francisco Fed President John Williams and Dallas Fed President Richard Fisher will speak at a conference. Bernanke has been speaking recently at private dinners with investors (reportedly for a fee of $250,000 per speech) and apparently has been saying that interest rates would remain low indefinitely. “At least one guest left a New York restaurant with the impression Bernanke, 60, does not expect the federal funds rate…to rise back to its long-term average of around 4% in Bernanke's lifetime.” The average lifespan of an American male is around 76 years, so he is apparently talking about at least 16 more years of below-4% rates.
On Tuesday, Philadelphia Fed President Plosser and New York Fed President Dudley speak. Dudley also speaks on Wednesday, shortly before Federal Reserve Chair Janet Yellen delivers the commencement address to New York University graduates at Yankee Stadium. Kansas City Fed President George and Minneapolis Fed President Kocherlakota also speak Wednesday, and the FOMC releases the minutes of its 29-30 April policy meeting. Finally, Williams speaks again on Friday. One topic sure to be discussed in these speeches and the minutes is not only when the Fed might raise interest rates, but also how: whether the Fed should stick with adjusting the target rate for Fed Funds or add more tools, such as changing the rate it pays banks on reserves that the hold with the Fed or using overnight reverse repurchase agreements with money-market funds.
In any event, the focus on the Fed, combined with the recent improvement in US economic indicators, is likely to keep the dollar solidly underpinned this week. Thoughts of higher interest rates in the US may take some of the steam out of carry trades, but that may be partially offset by expectations that the ECB is just at the beginning of a loosening cycle. Friday’s Commitment of Traders (COT) report showed that euro longs collapsed last week, from +32.6k to -2.2k, meaning investors may be shifting into EUR as a funding currency. The COT report also highlighted that the market is adding to JPY shorts even while USD/JPY moves lower. From a technical point of view, the short-term picture is mildly bearish, but on the daily chart USD/JPY is still trendless. The Bank of Japan Policy Board meeting on Wednesday is not likely to make any change in stance, nor is it likely to affect the market that much; most of the time this year USD/JPY moved within a ±0.2% range after the BoJ meetings.
As for today, the only economic indicator out is Sweden’s unemployment rate for April, which is forecast to have declined to 8.5% from 8.6% in March. There are several ECB members speaking today, but as all of them spoke last week, we can’t expect any major revelations from them today. ECB Governing Council member Jens Weidmann and the ECB Executive Board member Yves Mersch speak at a symposium in Frankfurt and ECB Executive Board member Benoit Coeure speaks in Paris.
On Tuesday, the RBA releases the minutes of its May monetary policy meeting and from the UK we get CPI and PPI data for April. Norway’s GDP for Q1 is also coming out. On Wednesday, Japan releases its trade data for April. Thursday is PMI day: China starts things rolling with the preliminary HSBC manufacturing PMI for May followed by the preliminary manufacturing and service-sector PMIs for the month from France, Germany and Eurozone as a whole. In the UK, we have the second estimate of GDP for Q1 and from the US, we get existing home sales for April. Finally on Friday, the main event will be the German Ifo survey for May. Germany also releases its final GDP data for Q1, while in the US, new home sales for April are coming out.
Currency Titles:
EUR/USD still on retracing mode
EUR/JPY meets support at 138.80
GBP/USD keeps the uptrend intact for now
Gold remains trendless
Are WTI bulls back?
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/19may2014/EURUSD_19May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/19may2014/EURJPY_19May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/19may2014/GBPUSD_19May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/19may2014/XAUUSD_19May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/19may2014/CLM4_19May2014.PNG
Currencies Text:
EUR/USD declined slightly to test the 1.3695 (S1) support but then moved slightly higher during the Asian morning Monday. Considering that the RSI continues moving higher after exiting oversold conditions, and that the MACD, although in its bearish territory, lies above its signal line, I would not rule out the continuation of the upside wave, maybe for a challenge near the 1.3745 (R1) zone. Nonetheless, I still consider the overall short-term outlook to be to the downside and the current advance to be a corrective wave. As a result, I would expect the bears to take control in the near future targeting once again the 1.3650 (S2) support level.
• Support: 1.3695 (S1), 1.3650 (S2), 1.3600 (S3).
• Resistance: 1.3745 (R1), 1.3790 (R2), 1.3815 (R3).
EUR/JPY met support at 138.80 (S1) and moved slightly higher. As long as the rate is printing lower lows and lower highs below both the moving average I see a negative picture. A clear dip below 138.80 (S1) could trigger extensions towards the next support at 137.55 (S2). Nonetheless, the RSI found support at its 30 level and moved higher, while the MACD, although in its bearish territory, crossed above its trigger line. As a result I would expect a forthcoming upside corrective wave, maybe for a test near the 140.00 (R1) hurdle, near the 50-period moving average.
• Support: 138.80 (S1), 137.55 (S2), 136.20 (S3).
• Resistance: 140.00 (R1), 141.00 (R2), 142.40 (R3).
GBP/USD moved higher after finding support near the lower boundary of the long-term upward sloping channel, connecting the highs and the lows on the daily chart. The advance was halted by the 50-period moving average and the 1.6840 (R1) resistance barrier, where an upside violation could see the next obstacle at 1.6900 (R2). The aforementioned rebound keeps the long-term uptrend intact, but on the daily chart, we can identify negative divergence between the daily MACD and the price action. As a result, although I would expect further advance in the near future, I would maintain a neutral stance as far as the long-term picture is concerned.
• Support: 1.6760 (S1), 1.6700 (S2), 1.6600 (S3).
• Resistance: 1.6840 (R1), 1.6900 (R2), 1.7000 (R3).
Gold moved in a consolidative mode, remaining near the levels we left it on Friday morning. The precious metal seems to prefer a sideways path between the support of 1280 (S1) and the resistance of 1315 (R2). Both our moving averages are pointing sideways, while both the daily MACD and the daily RSI lie near their neutral levels, confirming the trendless picture of the yellow metal. A break above 1315 (R2) is needed to turn the picture positive and could target the resistance of 1330 (R3), while a dip below 1280 (S1) may see the support of 1268 (S2).
• Support: 1280 (S1), 1268 (S2), 1250 (S3).
• Resistance: 1305 (R1), 1315 (R2), 1330 (R3).
WTI moved higher and is back above the 102.00 barrier. This confirms that the pullback is over and I would expect the bulls to target the resistance of 103.00 (R1). A clear break above that hurdle could pave the way towards the highs of April at 104.10 (R2). As long as WTI is printing higher highs and higher lows above both the moving averages, the uptrend remains in effect. On the daily chart, the daily RSI continues its upside path, while the daily MACD crossed above both its trigger and zero lines, favoring further advance.
• Support: 102.00 (S1), 101.15 (S2), 99.85 (S3).
• Resistance: 103.00 (R1), 104.10 (R2), 105.00 (R3).
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/19may2014/benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/19may2014/table.PNG
currency tags:
EUR
More...
Market Analysis 20/05/2014
Language English
Conflicting views of Fed policy: Fed policy is a focus this week, as I wrote yesterday, but just because people are focusing on it doesn’t mean it’s becoming any clearer. The Wall Street Journal suggested that the FOMC minutes to be released on Wednesday may have a hawkish tone, but another press report that the markets apparently took more seriously suggested the minutes would have a softer tone. Speaking in Texas, San Francisco Fed President Williams noted that inflation has been persistently below the Fed’s long-term target and said he was concerned that the recovery in the housing market had “stalled.” But he quickly contradicted those dovish comments by saying that the Fed would probably start raising rates over the next year or so as part of the process of “normalization” (which the market already expects, but it’s another thing to have it officially confirmed.) Investors started to worry that comments like this would be part of Wednesday’s FOMC minutes and 10-year yields moved up 2 bps. Fed Funds futures moved off their lows yet still ended the day with implied rates at the long end down 5.5 bps.
There was a similar mix of views with regards to ECB policy. ECB Board member Mersch said “the probability that the Governing Council will act already at its next meeting in June has risen significantly,” but Governing Council member Nowotny said that negative interest rates “must still be thoroughly discussed.”
The fact that EUR/USD was unable to make new lows against this mix of views made investors nervous and there was some short-covering as a result.
Nonetheless, I think the market is starting to pay more attention to this weekend’s European Parliament elections and this is likely to be negative for the euro. Taking Greece as a harbinger of what’s to come, the center-right New Democracy party of PM Samaras and the far-left Syriza party did well in the weekend’s preliminary elections. No candidates from the ultranationalist Golden Dawn party made it through to the second round voting, which will be held this coming Sunday, but they did perform surprisingly well for a party whose leaders have been charged with belonging to a criminal organization. Of course Greece is the country most affected by the EU’s austerity program, but still, the relatively good showing of the extreme left and right demonstrates how voters can use these European elections to send a message to their governments, and their governments are not deaf.
Perhaps in recognition of this fact, peripheral bond yields continued to rise yesterday. Inflows into peripheral bonds in anticipation of future quantitative easing has been one of the factors supporting the euro, but if the protest vote results in governments backing away from austerity and reform, then we could see outflows from both Eurozone bond and stock markets plus a resumption of the risk premium in the euro. Italy’s spread over Germany rose 7 bps yesterday while Portugal rose 10 bps and Spain rose 4 as these countries’ credit default swaps widened out, indicating an increased perception of risk. On top of the divergence in monetary policy, the return of the political risk premium to the euro should keep EUR/USD under pressure, in my view.
AUD fell overnight after the minutes of the recent Reserve Bank of Australia (RBA) meeting showed that officials expect growth to remain below trend and that rates were likely to remain low “for some time yet.” This confirms my view that AUD is likely to weaken (see “Outlook for AUD: Fundamentally points to weaken,” 15 May.)
Today’s schedule: During the European day, Germany’s PPI rate for April is forecast to have remained unchanged at -0.9% yoy. In Norway, the headline Q1 GDP is expected to have risen 1.0% qoq after declining 0.2% qoq the previous quarter. On the other hand, the closely watched mainland GDP is forecast to have slowed slightly to +0.5% qoq from +0.6% qoq.
In the UK, the CPI is forecast to have accelerated to +1.7% yoy in April from +1.6% yoy in March, while the nation’s PPI is forecast to have accelerated to +0.7% yoy from +0.5% yoy. Inflation moving back up could make investors think a rate hike is likely and send GBP higher.
Overnight there will be a dairy auction in New Zealand. Prices have been trending lower since February and the announcement of the results have hit the NZD the last several times.
We have seven speakers on Tuesday’s schedule. Former ECB President Jean-Claude Trichet gives the keynote speech at Vienna Bourse’s award ceremony. After that he will hold a discussion with the ECB Governing Council member Ewald Nowotny. ECB Governing Council member Luis Maria Linde speaks in Frankfurt, while the ECB Governing Council member Erkki Liikanen hosts a discussion in Helsinki. In the US, Philadelphia Fed President Charles Plosser speaks on the economic outlook in Washington and New York Fed President William Dudley speaks at an event hosted by the New York Association for Business Economics. In the UK, BoE Deputy Governor Charles Bean gives a lecture at London School of Economics.
Currency Titles:
EUR/USD had a quiet day
USD/JPY meets support at 101.10
EUR/GBP keeps the downtrend intact
Gold continues sideways
WTI touches 103.00
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/20may2014/EURUSD_20May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/20may2014/USDJPY_20May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/20may2014/EURGBP_20May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/20may2014/XAUUSD_20May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/20may2014/CLM4_20May2014.PNG
Currencies Text:
EUR/USD moved in a consolidative mode, remaining between the support of 1.3695 (S1) and the resistance of 1.3745 (R1). Considering that the RSI continues its upside path, and that the MACD, although in its bearish territory lies above its signal line, I would not rule out further upside movement, maybe for a challenge near the 1.3745 (R1) zone. Nonetheless, I still consider the overall short-term outlook to be to the downside and the current advance to be a corrective wave. As a result, I would expect the bears to take control in the near future targeting once again the 1.3650 (S2) support level.
• Support: 1.3695 (S1), 1.3650 (S2), 1.3600 (S3).
• Resistance: 1.3745 (R1), 1.3790 (R2), 1.3815 (R3).
USD/JPY moved lower, but after touching 101.10 (S2) rebounded to trade back above 101.40 (S1). The RSI moved higher after exiting oversold conditions, while the MACD, although in its negative zone, crossed above its trigger line. As a result I would expect the upside wave to continue. Although the rate is trading below both the moving averages on the 4-hour chart, on the daily chart, yesterday’s candle looks like a hammer formation, favoring the continuation of the upside wave. In the bigger picture, the long-term path of USD/JPY remains to the sideways, since we cannot identify a clear trending structure.
• Support: 101.40 (S1), 101.10 (S2), 100.75 (S3).
• Resistance: 102.00 (R1), 102.35 (R2), 102.70 (R3).
EUR/GBP moved sideways on Monday. The pair is trading above the support zone of 0.8130 (S1), but remains within the blue downward sloping channel and below both the moving averages. A clear dip below the 0.8130 (S1) hurdle would signal the continuation of the downtrend and could trigger extensions towards the next support at 0.8080 (S2). On the upside, only a move above the downtrend line and the key resistance of 0.8200 (R1) would be a reason to reconsider our analysis.
• Support: 0.8130 (S1), 0.8080 (S2), 0.8035 (S3).
• Resistance: 0.8200 (R1), 0.8246 (R2), 0.8285 (R3).
Gold moved higher, touched the resistance of 1305(R1) and then declined to meet its Monday morning levels. The precious metal seems to prefer a sideways path between the support of 1280 (S2) and the resistance of 1315 (R2). Both our moving averages continues to point sideways, while both the daily MACD and the daily RSI lie near their neutral levels, confirming the trendless picture of the yellow metal. A break above 1315 (R2) is needed to turn the picture positive and could target the resistance of 1330 (R3), while a dip below 1280 (S2) may see the support of 1268 (S3).
• Support: 1290 (S1), 1280 (S2), 1268 (S3).
• Resistance: 1305 (R1), 1315 (R2), 1330 (R3).
WTI moved higher and reached the 103.00 (R1) resistance, as expected. If the bulls are strong enough to push the price above that hurdle, I would expect them to target the highs of April at 104.10 (R2). As long as WTI is printing higher highs and higher lows above both the moving averages, the uptrend remains in effect. However, on the 4-hour chart, the RSI met resistance at its 70 barrier and moved lower, thus I cannot rule out a pullback before any further advance. My concern is that we have negative divergence between the MACD and the price action, indicating decelerating bullish momentum. In the bigger picture, on the daily chart, the daily RSI continues its upside path, while the daily MACD lies above both its trigger and zero lines, favoring the continuation of the uptrend.
• Support: 102.00 (S1), 101.15 (S2), 99.85 (S3).
• Resistance: 103.00 (R1), 104.10 (R2), 105.00 (R3).
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/20may2014/benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/20may2014/table.PNG
currency tags:
EUR
More...
Market Analysis 21/05/2014
Language English
Dudley gives a hint of FOMC discussions: The main event on the schedule for today is the release of the minutes from the 29-30 April FOMC meeting. We got a hint yesterday of what those minutes may contain when New York Fed President William Dudley gave a speech in which he discussed how the Fed was likely to exit its extraordinary measures. The framework was set out in June 2011, when the FOMC said it would first cease reinvesting some or all of the bonds maturing in its enormous portfolio and later would consider raising rates. However, Dudley suggested it should be done the other way around, because a) “such a decision might complicate our communications regarding the process of normalization” by making the markets think a tightening was coming earlier than the FOMC actually intends, and b) “it would be desirable to get off the zero lower bound in order to regain some monetary policy flexibility.” He also noted that the FOMC takes into account the reaction of the markets in determining its actions: if the response of the markets is mild, then “this might encourage a somewhat faster pace,” but “if bond yields were to move sharply higher, as was the case last spring, then a more cautious approach might be warranted.”
Dudley may have been rehashing some of what he and his colleagues on the FOMC were discussing late last month. If so, then it should be bearish for US bonds and bullish for the dollar when the minutes are released later today. Since the much better-than-expected April nonfarm payroll figures were released on 2 May, Fed Funds rate expectations have actually declined by 22 bps at the long end, while five-year yields are down 15 bps and 10-year yields down 10 bps. In other words, the response of the markets has been not just mild, it’s been enthusiastic. This would argue in favor of a faster-than-expected tightening and should be supportive of the dollar. We will see if any of this comes out in the minutes later today, or in FOMC Chair Yellen’s address to the graduation ceremony of New York University.
The point to note about the markets though is that even with US interest rates falling, the dollar is well supported. It gained yesterday against most G10 currencies and almost all the EM currencies that we track. Apparently there is some risk aversion coming in the market now – perhaps as a result of fears about the European Parliament elections and the rebound in peripheral European bond yields, perhaps due the military intervention in Thailand causing an outflow from EM – but this time around it’s rebounding to the benefit of USD.
Japan’s trade deficit narrowed considerably in April as a reversal to the unusually wide deficit in March, but it didn’t narrow as much as expected. The deficit widened out to JPY 1.7tn (SA) in March as companies diverted exports to the home market to supply the last-minute-rush to buy ahead of the consumption tax hike April 1st. The deficit narrowed back to JPY 845bn in April as exports rose 5.1% yoy, up from only 1.8% yoy in March. But these figures were also distorted by the rebound; we’ll have to see next month if we get back to the more recent level of deficits of around Y1.3tn a month, the average level of the six months before March, before we can determine what’s really happening with the country’s trade picture.
The Bank of Japan ended its two-day meeting and as expected there was no change in policy. Expectations of further easing are fading as companies’ investment intentions improve. The latest monthly survey by market research company QUICK showed that 24% of respondents now expect no additional easing, up from 9% in the April survey. Even among those who still hold out hope, many see it happening in the fall instead of the summer as previously expected. Reduced expectations for easing may mean a further decline in USD/JPY. Nonetheless, higher investment by Japanese companies at the same time as household purchasing power is declining due to rising prices means that the savings/investment imbalance will continue to shrink, meaning the current account surplus will also continue to shrink until finally it may move into deficit. That would definitely be JPY-negative.
Prices fell at the dairy auction in New Zealand for the seventh straight time, putting some downward pressure on NZD. AUD was also weaker as the Westpac consumer confidence index fell, indicating an unfavorable response to the recent budget. The contractionary budget and the need to offset it with an expansionary monetary policy was one reason I expect AUD to weaken.
During the European day, the main point of interest will be the UK retail sales figures for April. These are expected to show a rebound in sales, both including and excluding autos. That ought to be good news for the pound as it would confirm that the consumer-led recovery in the UK continues.
Currency Titles:
EUR/USD remains near 1.3700
EUR/JPY seems ready for further decline
GBP/USD testing the 1.6840 barrier
Gold still trendless
Are WTI bulls ready for another leg?
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/21may2014/EURUSD_21May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/21may2014/EURJPY_21May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/21may2014/GBPUSD_21May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/21may2014/XAUUSD_21May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/21may2014/CLM4_21May2014.PNG
Currencies Text:
EUR/USD declined slightly on Tuesday, but after finding support at 1.3680 (S1) it moved higher to trade near 1.3700 again. Considering that the path of the RSI remains to the upside, and that the MACD, although in its bearish territory lies above its signal line, I would not rule out some further consolidation or a test near the 1.3745 (R1) zone.
• Nonetheless, I still consider the overall short-term outlook to be to the downside and as a result, I would expect the bears to take control in the near future targeting once again the 1.3650 (S2) support level.
• Support: 1.3680 (S1), 1.3650 (S2), 1.3600 (S3).
• Resistance: 1.3745 (R1), 1.3790 (R2), 1.3815 (R3).
EUR/JPY declined and fell below the 138.80 obstacle. I would expect such a dip to have more bearish implications and trigger extensions towards the next support at 137.55 (S2). As long as the rate is printing lower highs and lower lows below both the moving averages I still see a negative short-term outlook. In the bigger picture, the 137.55 (S1) support coincides with the 200-day moving average, thus we need to see a clear dip below that area to expect larger bearish extensions.
• Support: 137.55 (S1), 136.20 (S2), 134.10 (S3).
• Resistance: 138.80 (R1), 140.00 (R2), 141.00 (R3).
GBP/USD tried to emerge above 1.6840 (R1) but failed to do so and closed the session below it, near the 50-period moving average. A decisive move above that resistance zone could target the next obstacle at 1.6900 (R2). The rebound from the 1.6760 (S1) support zone keeps the long-term uptrend intact, but on the daily chart, the negative divergence between the MACD and the price action is still in effect. As a result, although I would expect a further advance in the near future, I would maintain a neutral stance as far as the long-term picture is concerned.
• Support: 1.6760 (S1), 1.6700 (S2), 1.6600 (S3).
• Resistance: 1.6840 (R1), 1.6900 (R2), 1.7000 (R3).
Gold moved in a consolidative mode, remaining slightly above the 1290 (S1) support barrier. The precious metal seems to prefer a sideways path between the support of 1280 (S2) and the resistance of 1315 (R2). Both our moving averages continue to point sideways, while both the daily MACD and the daily RSI lie near their neutral levels, confirming the trendless picture of the yellow metal. A break above 1315 (R2) is needed to turn the picture positive and could target the resistance of 1330 (R3), while a dip below 1280 (S2) may see the support of 1268 (S3).
• Support: 1290 (S1), 1280 (S2), 1268 (S3).
• Resistance: 1305 (R1), 1315 (R2), 1330 (R3).
WTI pulled back as expected and found support slightly above the 102.00 (S1) barrier. If the bulls are strong enough to take control near that support zone, I would expect them to overcome the 103.00 (R1) hurdle and drive the battle towards the highs of April at 104.10 (R2). As long as WTI is printing higher highs and higher lows above both the moving averages, the uptrend remains in effect. However, my concern is that we can identify negative divergence between the MACD and the price action, indicating decelerating bullish momentum.
• Support: 102.00 (S1), 101.15 (S2), 99.85 (S3).
• Resistance: 103.00 (R1), 104.10 (R2), 105.00 (R3).
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/21may2014/benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/21may2014/table.PNG
currency tags:
EUR
More...
Market Analysis 22/05/2014
Language English
Sometimes it’s not really worth waiting for The minutes of the recent FOMC meeting were much awaited, particularly after several FOMC members had given rather tantalizing speeches in the past few days in which they made provocative comments about the need for tightening, how the Fed should go about raising rates, and other topics of great concern to the market. Nonetheless the fact did not equal the anticipation. There was little change in views evident in the minutes – the phrase “had not changed materially since the March meeting” appeared several times – and while they said they “discussed a wide range of topics related to policy normalization,” the only action they decided on was to request additional analysis from the staff. The “how” of policy normalization is getting as much attention as the “when” or “why” as they heard a staff presentation on various new techniques for operating in the money markets. There were no concerns about inflation; “most participants” saw it returning gradually to the Fed’s 2% target, while “a few others” were concerned it would take even longer. Thus they concluded that at the moment there is no trade-off between pursuing their inflation or employment mandates; further stimulus can help them to achieve both. This is not the hawkish view I expected after hearing some of the Fed members speaking recently, but neither was it a departure from previous Fed statements. With no new information, there was no impetus to trading, and interest rates were barely changed: Fed Funds expectations were unmoved and both five- and ten-year yields were up around 2 bps or less, a marginal move.
There was more action after the US close when the May HSBC/Markit manufacturing PMI for China rose sharply to 49.7 from 48.1, beating expectations of a much smaller gain to 48.3 and nearly regaining the key 50 level. The report showed both output and orders rebounding, which encouraged optimism that Chinese demand will stabilize. AUD and NZD both gained on the news, with AUD outpacing NZD. I don’t believe that the situation in China will turn around so quickly and so I would not like to chase this rally, on the contrary I think it could provide a good opportunity for people looking to go short. However the currencies could maintain their momentum for the moment.
The European day continues with the preliminary manufacturing and service-sector PMIs for the same month from France, Germany and the Eurozone as a whole. The majority of the indices are forecast to have declined, something that could proof EUR-negative.
The second estimate of the UK GDP for Q1 is also coming out. The forecast is the same as the initial estimate at +0.8% qoq.
The US data is forecast to be largely better. The preliminary Markit manufacturing PMI is forecast to have risen slightly. Initial jobless claims for the week ended on May 17 are forecast to have risen to 310k from 297k. Nonetheless, the 4wk moving average will continue falling to 318k from 323k. US Existing Home sales are expected at 4.7mn in April, up from 4.6mn. On the other hand, the Chicago Fed national activity index is estimated to have declined. The contrast between this group of largely improving indicators and the disappointing Eurozone data may help to keep the USD rally going.
Elsewhere, in Norway, the AKU unemployment rate is forecast to have remained unchanged, while Canada’s retail sales for March are expected to have slowed, which may add to the CAD’s recent problems.
Two speakers are on Thursday’s schedule. ECB Governing Council member and Bank of Spain Governor Luis Maria Linde speaks in Madrid and San Francisco Fed President John Williams will deliver the keynote speech at a conference.
Currency Titles:
EUR/USD bears are back
USD/JPY rebounds from 100.80
EUR/GBP continues the downtrend
Gold remains sideways
WTI reaches the highs of April
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/22may2014/EURUSD_22May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/22may2014/USDJPY_22May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/22may2014/EURGBP_22May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/22may2014/XAUUSD_22May2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/22may2014/CLM4_22May2014.PNG
Currencies Text:
EUR/USD fell sharply on Wednesday, reaching once again the support barrier of 1.3650 (S1). Near that zone, the pair found some buy orders and rebounded somewhat to meet resistance at 1.3685 (R1). As long as the pair is trading below both the moving averages, the short-term bias remains to the downside and a clear dip below the hurdle of 1.3650 (S1) could see the next one at 1.3600 (S2). The MACD turned down and, already in its bearish territory, poked its nose below its signal line, confirming yesterday’s bearish sentiment.
• Support: 1.3650 (S1), 1.3600 (S2), 1.3475(S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3790 (R3).
USD/JPY fell sharply yesterday, but after finding support at the 100.80 (S2) zone, near the 200-day moving average, it rallied to trade slightly below 101.60 (R1). In early European trading the rate seems ready to challenge that barrier and an upside violation may see the next resistance obstacle at 102.00 (R2). Both our momentum studies are pointing up, while the MACD crossed above its signal line, favoring the continuation of the upside wave. Although I expect the forthcoming move to be bullish, in the bigger picture, the long-term path of USD/JPY remains to the sideways, since we cannot identify a clear trending structure.
• Support: 101.10 (S1), 100.80 (S2), 100.40 (S3).
• Resistance: 101.60 (R1), 102.00 (R2), 102.35 (R3).
EUR/GBP fell below the 0.8130 hurdle, confirming a lower low and signaling the continuation of the existing short-term downtrend. During the early European morning, the price lies slightly below the lower boundary of the blue downward sloping channel and slightly above our support barrier of 0.8080 (S1). Considering that the MACD remains below both its signal and zero lines, I would expect the bears to challenge that obstacle. A clear dip below it may target the next support at 0.8035 (S2).
• Support: 0.8080 (S1), 0.8035 (S2), 0.8000 (S3).
• Resistance: 0.8130 (R1),k 0.8200 (R2), 0.8246 (R3).
Gold continued consolidating on Wednesday, remaining near 1290. The precious metal seems to prefer a sideways path between the support of 1280 (S1) and the resistance of 1315 (R2). Both our moving averages continue to point sideways, while both the daily MACD and the daily RSI lie near their neutral levels, confirming the trendless picture of the yellow metal. A break above 1315 (R2) is needed to turn the picture positive and could target the resistance of 1330 (R3), while a dip below 1280 (S1) may see the support of 1268 (S2).
• Support: 1280 (S1), 1268 (S2), 1250 (S3).
• Resistance: 1305 (R1), 1315 (R2), 1330 (R3).
WTI moved higher and reached the highs of April at 104.10 (R1), as expected. If the longs are strong enough to overcome that barrier, I would expect them to overcome the aforementioned resistance and trigger extensions towards the critical barrier of 105.00 (R2). As long as WTI is printing higher highs and higher lows above both the moving averages, the uptrend remains in effect. However, I would expect some profit taking near the 104.10 (R1) bar, thus some consolidation or a pullback near the blue uptrend line cannot be ruled out.
• Support: 103.00 (S1), 102.40 (S2), 101.70 (S3).
• Resistance: 104.10 (R1), 105.00 (R2), 108.00 (R3).
Benchmark Currency Rates:
http://shared.ironfx.co.uk/morning_pictures_2014/22may2014/benchmark.PNG
Market Summary Url:
http://shared.ironfx.co.uk/morning_pictures_2014/22may2014/table.PNG
currency tags:
EUR
More...