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Market Analysis 20/06/2014
Language English
Gold, silver jumpAfter weeks of trading quietly, gold and silver jumped yesterday, with gold rising 2.8% and silver exploding 4.5% in heavy volume. Reasons quoted on the screens included thoughts that Fed would keep rates low for a long time and the fall in the dollar, although the 4.5 bps drop in the implied interest rate on Fed Funds futures yesterday was hardly enough to justify the sharp rise in the precious metal prices. President Obama’s decision to send some soldiers to Iraq as “military advisors” may also have had something to do with it. In the background, the unwind of China’s commodity financing deals may be helping to boost the price of gold as Chinese speculators sell their physical gold and at the same time buy back their hedges in the futures market. This mechanism assumes that the paper market dominates the pricing of gold rather than the physical market, which seems possible given the difference in volumes. The effect would probably be the opposite in other commodity markets affected by the Chinese financing deals however, such as iron ore and copper.
Silver’s marked outperformance is no accident. First off, it has historically been more volatile than gold, so naturally it should outperform on the upside just as it has underperformed recently on the downside. Secondly, positioning is extremely short – according to the Commitment of Traders report, speculative investors were essentially flat at the beginning of June, the shortest they’ve been since 2003 (indeed, if we include option positions, they were net short). Gold investors continue to be long however, with recent positioning ranking around the 20th percentile for the last two years (that is to say, speculative investors had larger long positions over that period for about 80% of the time for gold, as opposed to 100% of the time for silver). On the other hand, silver exchange traded funds (ETFs) have seen a net inflow of 1.6% so far this year, while gold ETFs have seen a net outflow of 2.8%. That suggests retail is still bullish on silver, which may provide an underpinning of demand for the white metal.
Finally, it’s usual for silver to outperform gold when US manufacturing is expanding, as shown by the Institute of Supply Management (ISM) index being above 50. That’s because silver has many more industrial uses than gold does.
It seems likely to me that if tensions in Iraq rise further, precious metals may continue to rise and in that case, silver should outperform gold, in my view.
As for the FX market, the dollar fell against most of the G10 currencies. The biggest gainer was CHF, which may be an indication that risk aversion was dominating the FX market. That would also explain why the dollar gained against most EM currencies despite expectations of lower US rates and the post-FOMC fall in the VIX index of expected volatility. Low volatility is good for carry trades, so I had expected the fall in the VIX index to encourage flows into high-yielding EM currencies, but apparently the fears of a worsening crisis in the middle east and higher oil prices were dominating the market yesterday. That might also explain why the petrocurrency RUB was the best-performing currency overnight. The worst performing one was the NOK, which plunged after the Norges Bank revised down its rate path yesterday and failed to recover any ground overnight.
During the European day, Germany’s PPI rate is forecast to have declined 0.7% yoy in May, compared with -0.9% yoy in April. We also get Italy’s industrial orders for April and Eurozone’s preliminary consumer confidence indicator. Neither release is a major market mover.
In Canada, the headline CPI for May is estimated to have remained unchanged at +2.0% yoy and the core CPI to quicken slightly to +1.5% yoy from +1.4% yoy. Furthermore, nation’s retail sales are expected to rise 0.6% mom for April from -0.1% in the previous month. These would tend to be CAD-positive.
As for speakers, ECB Executive Board member Yves Mersch speaks in Brussels.
Currency Titles:
EUR/USD still in a retracing mode
EUR/JPY slightly above 138.65
GBP/USD sustains its rate above 1.7000
Gold shoots up to 1320
Has WTI completed its correction?
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/20june2014/EURUSD_20June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/20june2014/EURJPY_20June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/20june2014/GBPUSD_20June2014.PNG
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http://shared.ironfx.co.uk/morning_pictures_2014/20june2014/CLN4_20June2014.PNG
Currencies Text:
EUR/USD continued moving higher after breaking above the 1.3587 barrier, but the advance was stopped by the 200-period moving average. Considering that both our momentum studies continue their upside paths, I still expect the rate to challenge the 1.3685 (R1) zone, which coincides with the 38.2% retracement level of the 8th May- 5th June decline. In the bigger picture, we can identify positive divergence between the 14-day RSI and the price action, while the daily MACD crossed above its trigger line. This increases the likelihood for the continuation of the bullish wave. However, the long-term picture remains to the downside and I would consider any further advance as a retracement for now.
• Support: 1.3587 (S1), 1.3500 (S2), 1.3475 (S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3745 (R3).
EUR/JPY inched above the 138.65 hurdle. Seeing that our momentum studies shows signs of decelerating bullish momentum, I would expect further consolidation near that zone and I could not rule out a move back below 138.65 again. In the bigger picture, the rate is trading within a possible falling wedge formation, thus I would maintain my neutral view. Only a decisive move out of the pattern could give clearer indications about the forthcoming direction of the rate.
• Support: 138.65 (S1), 137.70 (S2), 100.80 (S3).
• Resistance: 139.35 (R1), 140.00 (R2), 141.00 (R3).
GBP/USD moved higher on Thursday, breaking above the psychological barrier of 1.7000 and confirming a forthcoming higher high. I would expect such a move to have larger bullish implications and see as a first target the 1.7100 zone. The MACD, already in bullish territory, crossed above its trigger line, confirming the accelerating momentum of the price action. I would ignore the overbought reading of RSI since the indicator does not seem willing to exit extreme conditions. As long as cable is forming higher highs and higher lows within the purple upside channel and above both the moving averages, I see a positive picture. On the daily chart, the 80-day exponential moving average provides significant support to the lows of the price action, keeping the long-term upside path intact.
• Support: 1.7000 (S1), 1.6915 (S2), 1.6880 (S3).
• Resistance: 1.7100 (R1), 1.7200 (R2), 1.7300 (R3).
Gold surged yesterday, breaking two resistance barriers in a row. The rally of the precious metal was halted near the 1320 (R1) zone. A move above that resistance may see the next one at 1330 (R2). The move above the 1285 barrier confirmed a forthcoming higher high and turned the short-term picture of the metal positive. Nonetheless, considering that the RSI shows signs of topping within its overbought territory, I cannot rule out some price consolidation or a pullback before the longs take control again.
• Support: 1305 (S1), 1285 (S2), 1268 (S3).
• Resistance: 1320 (R1), 1330 (R2), 1342 (R3).
WTI moved higher after finding support at the 38.2% retracement level of the 5th June – 13th June rally, at 105.25 (S1). The RSI moved above its blue downtrend line, while the MACD seems ready to cross above its signal line. As a result, I believe that the correction phase is over and we could experience a move towards the 108.00 (R1) resistance zone. A clear move above that zone is likely to trigger extensions towards the 110.00 (R2) area. As long as we see a structure of higher highs and higher lows, I consider the upside path to remain intact.
• Support: 105.25 (S1), 104.10 (S2), 103.65 (S3).
• Resistance: 108.00 (R1), 110.00 (R2), 112.00 (R3).
Benchmark Currency Rates:
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Market Analysis 23/06/2014
Language English
The unwind continuesThe market is apparently still mulling over the implications of the FOMC statement and FOMC Chair Janet Yellen’s comments. At the short end, the Fed Funds expectations for 2017 are back almost to exactly where they were on the Monday before the meeting, in contrast to the Tuesday and Wednesday levels, which were around 4 bps higher. At the same time bond yields, which moved lower immediately after the meeting, have more or less regained their pre-FOMC levels. So there has been mean reversion in the fixed income markets, signifying that at the end of the day, the market doesn’t see any real change in view at the Fed. On the other hand, the VIX index remains notably lower than before the meeting, US stocks rallied for six consecutive days, and the dollar is weaker across the board, both in comparison to G10 and EM currencies. So the question is why mean reversion in fixed income isn’t accompanied by mean reversion in FX.
My guess is that it’s due to the Fed’s view on accelerating inflation in the US. Inflation is rising faster than nominal yields are, meaning that real interest rates are coming down in the US. Yellen dismissed the recent acceleration in inflation as “noisy” data, but the trend does seem to be upwards. Moreover, Canada’s CPI for May, released on Friday, was well above expectations at +2.3% yoy headline, +1.7% yoy core (forecast: 2.0%, 1.5% respectively). US and Canadian inflation tend to move together. With the FOMC still focused on the employment side of its dual mandate, US real yields are likely move lower, which may slow any USD rally from here. The huge demand for fixed income product is likely to keep USD yields from rising significantly. US investment-grade bond issuance is already the largest for any June on record and there’s one week left in the month.
We may get some clarification on the Fed’s view when Yellen gives the inaugural Michel Camdessus central banking lecture at the IMF on 2 July. That will be followed by the nonfarm payrolls on 3 July and FOMC minutes on 9 July.
The dollar is opening mixed this morning, higher against SEK, CHF and EUR and lower vs the commodity currencies – CAD, AUD and NZD. In the EM world, ZAR and MXN gains strongly while PLN and RUB were lower. It looks as if the market is favouring those countries that may tighten monetary policy while selling those where policy may be loosened. ZAR was probably boosted too by Saturday’s reports of a “breakthrough” in talks to end South Africa’s longest-ever mining strike. Details of the agreement will be released today. Expectations of an agreement bolstered ZAR on Friday and I would expect it to gain further today once the details are out. The commodity currencies are also likely beneficiaries of the much higher-than-expected rise in the HSBC/Markit China manufacturing PMI for June, which jumped to 50.8 from 49.4 (market consensus: 49.7). The surprising return of this gauge above the 50 level for the first time this year buoyed copper significantly. The recovery of growth in China plus rising oil prices on the back of Iraqi tensions should mean more gains for the commodity currencies.
RUB stands out as an outlier. The market is rewarding currencies with tight monetary policy, plus oil and other commodity prices are moving higher, but fresh clashes in Ukraine and NATO reports of more Russian forces near Ukraine are hurting the ruble. It’s likely to remain hostage to geopolitical forces.
The rest of the PMIs will take center stage during the European day as well. The Eurozone manufacturing PMI is expected to be unchanged while the service sector PMI is forecast to be slightly higher. Somehow the composite index is forecast to be marginally lower. German manufacturing PMI is also forecast to rise, while French manufacturing PMI on the other hand is expected to fall. The opposite holds for the service PMIs.
In the US, the preliminary Markit manufacturing PMI is expected to be lower, although attention usually focuses on the ISM index. Chicago Fed national activity index is estimated to have increased to 0.20 in May, a turnaround from -0.32 in the previous month. Existing Home sales are forecast to have increased in May.
We have three speakers on Monday’s agenda. ECB’s Vice President Vitor Constancio speaks in Frankfurt, ECB Executive Board Member Yves Mersch speaks in Poland and ECB Governing Council Member Ewald Nowotny also speaks.
As for the rest of the week, on Tuesday, the main event will be the German Ifo survey for June. In the UK we get the BBA mortgage approvals for May, while in the US, new home sales for May, while the FHFA and the S&P/Case-Shiller house price indices for April are also coming out. On Wednesday, in the Eurozone, we have the German GfK consumer confidence index for June and Italy’s retail sales for April. From the US, we have durable goods orders for May and the third estimate of the nation’s GDP for Q1. On Thursday, US personal income and personal spending for May are coming out, alongside the PCE deflator for the same month. The latter will be closely watched to see if the higher prices reflected in the CPI are indeed just “noise.” Finally, on Friday, we get the usual end-of-month data dump from Japan. In Europe, the preliminary German CPI for June is coming out, which may impact real rates in the Eurozone and hence be crucial for EUR/USD. Also the UK final GDP for Q1 is due. In the US, we get the University of Michigan final consumer sentiment for June.
Currency Titles:
EUR/USD still in a correcting phase
EUR/JPY within a falling wedge
GBP/USD tests the 1.7000 barrier as a support
Gold in a consolidative mode
WTI’s uptrend is back in force
Currencies Image Url:
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http://shared.ironfx.co.uk/morning_pictures_2014/23june2014/EURJPY_23June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/23june2014/GBPUSD_23June2014.PNG
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http://shared.ironfx.co.uk/morning_pictures_2014/23june2014/CLQ_23June2014.PNG
Currencies Text:
EUR/USD found resistance at the 200-period moving average and moved lower to find support at the blue short-term uptrend line, slightly below the 1.3587 barrier. If the longs are willing to take advantage of that support zone, I would expect them to challenge the 1.3685 (R1) zone, which coincides with the 38.2% retracement level of the 8th May- 5th June decline. Relying on our short-term momentum studies does not seem a solid strategy at the moment, since the RSI found support near its 50 level and is now pointing up, but the MACD remains below its signal line and is pointing down. In my view, the long-term picture remains to the downside and I would consider any further advance as a retracement for now.
• Support: 1.3587 (S1), 1.3500 (S2), 1.3475 (S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3745 (R3).
EUR/JPY moved sideways, remaining slightly above the 138.65 (S1) hurdle. Seeing that our short-term momentum studies show signs of topping with the MACD ready to cross below its signal line, I would expect further consolidation near that zone and I cannot not rule out a move back below 138.65 (S1) again. In the bigger picture, the rate is trading within a possible falling wedge formation, thus I would maintain my neutral view. Only a decisive move out of the pattern could give clearer indications about the pair’s forthcoming direction.
• Support: 138.65 (S1), 137.70 (S2), 100.80 (S3).
• Resistance: 139.35 (R1), 140.00 (R2), 141.00 (R3).
GBP/USD edged higher after challenging the psychological barrier of 1.7000 (S1) as a support this time. As long as cable is forming higher highs and higher lows within the purple upside channel and above both the moving averages, I see a positive picture and I would expect the rate to go for the 1.7100 (R2) zone. My only concern is that we can identify negative divergence between the MACD and the price action, indicating that the upside momentum is decelerating. On the daily chart, the 80-day exponential moving average provides significant support to the lows of the price action, keeping the long-term upside path intact.
• Support: 1.7000 (S1), 1.6915 (S2), 1.6880 (S3).
• Resistance: 1.7060 (R1), 1.7100 (R2), 1.7200 (R3).
Gold moved in a consolidative mode on Friday, remaining between the support barrier of 1305 (S1) and the resistance of 1320 (R1). The RSI moved lower and seems ready to exit overbought conditions, while the MACD shows signs of topping. As a result, further consolidation or a downside wave are possible in the near future. However, as long as the structure of the precious metal is higher highs and higher lows, the technical picture remains positive and I would consider any downside waves as corrective waves, at least for now.
• Support: 1305 (S1), 1285 (S2), 1268 (S3) .
• Resistance: 1320 (R1), 1330 (R2), 1342 (R3).
WTI opened with a bullish gap above the 107.00 hurdle, confirming my view that the prior correcting phase is over and the uptrend is back in force. As long as we see a structure of higher highs and higher lows, the outlook remains positive and I would expect WTI to challenge the 108.00 (R1) zone. The MACD rebounded from its blue support line, while it crossed above its signal line, amplifying the case for the continuation of the short-term uptrend.
• Support: 107.00 (S1), 105.80 (S2), 105.10 (S3).
• Resistance: 108.00 (R1), 110.00 (R2), 110.70 (R3).
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Market Analysis 24/06/2014
Language English
A pause in Iraq?Oil was the major loser overnight on speculation that Iraqi oil production won’t be disrupted by escalating violence in the country. Although the Iraqi army yesterday ceded control of the Baiji refinery in the north, they also recaptured some territory along the border with Jordan and Syria, according to Iraqi state TV. Moreover, the fighting has remained concentrated in the north and center of the country, while the oil industry is concentrated in the south, so there has not been that much disruption to oil exports. The movement in the markets is largely a risk premium that rises and falls with the insurgents’ progress. The change in Brent futures over the last month suggests that the market is most concerned about what will happen this year and not as concerned about the longer-term future of oil prices. Personally though I would not put too much weight on one day’s events in what is likely to be a lengthy battle. Iraq produces 3mn barrels a day of oil, making it the second-largest oil producer in OPEC after Saudi Arabia.
Looking at the betas of currencies with regards to movements in the Brent price over the last two years, we find that HUF, TRY, CHF and DKK (in that order) tend to gain the most vs USD when oil prices decline. On the other hand, the currencies of oil producing countries – RUB, CAD, and NOK – tend to be the best-performing currencies when oil prices are moving up, as one might expect. I have no explanation for why CZK has about the same beta to oil prices as MXN.
The decline in oil was echoed in other commodities, with copper, nickel and aluminium all falling. That seems strange given the surprising rise in the June HSBC/Markit manufacturing PMI for China released yesterday, which broke above the 50 “boom or bust” line for the first time this year. The fall probably reflects the continued unwinding of Chinese commodity financing deals. It was announced yesterday that imports of copper into China fell in May. The unwinding of the huge amount of material held in these deals would probably have a strong impact on the market and could presage deeper declines for AUD in the future.
Yesterday’s PMIs showed a widening divergence between the Eurozone and the US. The German PMI was lacklustre, rising only marginally, while the French manufacturing PMI declined at an accelerating pace. In the US however the PMI rose more than expected, as did existing home sales. Overall, the economic surprise index for the Eurozone is pointing down, while that for the US is pointing up. This divergence in economic performance is likely to cap EUR/USD on the upside even while the divergence in inflation (and hence real interest rates) puts a floor on the pair. The result could be just a further period of low volatility.
On Tuesday, the main event will be the German Ifo survey for June. The current assessment index is expected to rise somewhat to 115.0 from 114.8, but the expectations index is estimated to decline marginally to 106.0 from 106.2. The expectations index tends to dominate the effect on the market, so it is possible that the number could depress EUR/USD.
In the UK, the BBA mortgage approvals are expected to have fallen in May.
From the US, the Conference Board consumer confidence index for June is expected to have risen slightly, while the Richmond Fed manufacturing index for the same month is expected to decline to 6 from 7. New home sales for May are expected to be higher at a 4.40mn annualized pace, up from 4.33mn in April. On the other hand, two indices of home prices -- Federal Housing Finance Agency (FHFA) and S&P/Case-Shiller house price indices -- are forecast to show that the pace of increase in house prices slowed in April.
We have five speakers scheduled on Tuesday. Bank of England Governor Mark Carney testifies in parliament on inflation report. ECB Governing Council member Ewald Nowotny and ECB Executive Board member Benoit Coeure speaks, Philadelphia Fed President Charles Plosser and New York Fed President William Dudley also speaks.
Currency Titles:
EUR/USD remains near the 1.3587 barrier
USD/JPY within a symmetrical triangle
EUR/GBP within a short-term range
Gold still in a consolidative mode
WTI breaks below the uptrend line
Currencies Image Url:
http://shared.ironfx.co.uk/morning_pictures_2014/24june2014/EURUSD_24June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/24june2014/USDJPY_24June2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/24june2014/EURGBP_24June2014.PNG
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http://shared.ironfx.co.uk/morning_pictures_2014/24june2014/CLQ4_24June2014.PNG
Currencies Text:
EUR/USD failed to move higher, with the worse-than-expected PMIs from France, Germany and Eurozone as a whole keeping the rate pinned down close to the 1.3587 (S1) barrier and the blue short-term support line. The RSI broke below its uptrend line and is now ready to fall below 50, while the MACD, although in its positive territory, remains below its trigger line. Given that, I would keep a neutral stance for now. A price dip below the blue short-term support line may confirm the weakness signs provided by our momentum studies and target the psychological zone of 1.3500 (S2). In the bigger picture, the pair is trading below the 200-day moving average, keeping the long-term outlook negative. However, we need a dip below 1.3500 (S2) to reinforce the downtrend.
• Support: 1.3587 (S1), 1.3500 (S2), 1.3475 (S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3790 (R3).
USD/JPY moved lower on Monday, to find support at the lower bound of a possible symmetrical triangle. Since the rate remains within the formation, I see a neutral picture. Only a decisive move out of the pattern could give clearer indications about the pair’s forthcoming short-term direction. Both the 50- and the 200-period moving averages are pointing sideways, while both our short-term momentum studies lie near their neutral levels, confirming the non-trending phase of the currency pair.
• Support: 101.80 (S1), 101.60 (S2), 101.10 (S3).
• Resistance: 102.15 (R1), 102.35 (R2), 102.70 (R3).
EUR/GBP remains within a range between the support of 0.7960 (S1) and the resistance of 0.8015 (R1). Considering that the MACD lies above its trigger line, I cannot rule out a price move above 0.8015 (R1), maybe towards the next hurdle of 0.8080 (R2). Nonetheless, the pair is trading below the blue downtrend line and below both the moving averages, thus I would consider any upside moves as corrective waves before the bears prevail again. A dip below the 0.7960 (S1) is needed to confirm a forthcoming lower low and trigger the continuation of the downtrend. Zooming on the 1-hour chart, our hourly momentum studies lie near their neutral levels, confirming the near-term consolidation of EUR/GBP.
• Support: 0.7960 (S1), 0.7900 (S2), 0.7815 (S3).
• Resistance: 0.8015 (R1), 0.8080 (R2), 0.8140 (R3).
Gold continued consolidating on Monday, remaining between the support barrier of 1305 (S1) and the resistance of 1320 (R1). The RSI moved lower and seems ready to exit overbought conditions, while the MACD fell below its signal line. As a result, further consolidation or a downside wave are possible in the near future. However, as long as the structure of the precious metal is higher highs and higher lows, the technical picture remains positive and I would consider any downside waves as corrective waves, at least for now.
• Support: 1305 (S1), 1285 (S2), 1268 (S3) .
• Resistance: 1320 (R1), 1330 (R2), 1342 (R3).
WTI failed to maintain its price above 107.00. WTI found resistance at 107.35 (R2) and fell sharply to violate the blue short-term uptrend line. If the bears are strong enough to push the price below 105.10 (S1), I would expect them to trigger extensions towards the next hurdle at 104.00 (S2). Moreover, negative divergence is identified between both our momentum studies and the price action, while the MACD fell below its trigger and below its support line. On the daily chart, we can identify a bearish engulfing candle formation, increasing the likelihood for the continuation of the decline.
• Support: 105.10 (S1), 104.00 (S2), 103.05 (S3).
• Resistance: 105.80 (R1), 107.35 (R2), 108.00 (R3).
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Market Analysis 25/06/2014
Language English
Answer: no Yesterday’s “Big Picture” was entitled, “A pause in Iraq?” The answer to that question came quickly, and the answer is: no, there’s no pause at all. It was reported yesterday that the Syrian air force bombed the Iraqi city of Qaim in a strike against the insurgent forces, the Islamic State in Iraq and the Levant (ISIS). The news derailed a rally in the equity market and caused oil to spike back up.
The dollar’s oil betas that we published yesterday turned out to be a mixed guide to the reaction in the FX market. RUB was indeed the biggest gainer, as the betas predicted, although that may have had more to do with news of a cease-fire in Ukraine than with the oil market. The dollar was unchanged vs NOK and actually rose vs CAD and MXN, contrary to what the betas would suggest. CZK did rally though, oddly enough. On the other side of the trade, HUF and TRY did indeed decline, but that may have been due more to the interest rate cuts in those two countries than the rebound in oil prices. CHF gained and JPY was almost unchanged, which go against the predictions of the betas. So we see that while the betas may be a guide to general movements over time, they cannot be expected to provide a certain guide for daily movements.
It was notable too that WTI rose more than Brent did yesterday. A good part of the rise may be due to a story that ran in the Wall Street Journal saying that the US government is likely to relax further the restrictions on exporting some kinds of ultra-light oil that have been processed in certain ways. Almost all exports of oil from the US are banned, but there is growing pressure for these restrictions to be relaxed as US oil production rises. That would help to lift the price of WTI closer to Brent, which is now around $7.50 a barrel more expensive.
Despite the renewed tensions in Iraq, volatility remains quite low. Every morning when I start work I record the levels of a number of currencies. Over the last 10 working days, the opening quote for USD/JPY has been between 101.85 and 102.20. I can remember days when that would have been the bid-offer spread. The “old” VIX index, the VIX index based on the S&P 100, which has a history going back to 1986, hit a record low yesterday.
Among the G10 currencies, the biggest mover over the last 24 hours was AUD, which fell sharply after the Australian government’s Bureau of Resources and Energy Economics cut its price estimate for iron ore for this year to USD 105/ton from USD 110/ton forecast in March. It also lowered its forecast for prices in 2015 to USD 97 from USD 103. Even these forecasts seem optimistic as the recent price is around USD 93. I expect falling commodity prices to continue to depress Australia’s terms of trade and weaken the currency further.
The US economic data out was generally good. New home sales rose more than expected, hitting the highest level since before the Lehman Bros. crash, and continuing the good news from Tuesday’s existing home sales. The Conference Board’s index of US consumer confidence for June also rose more than expected, in contrast to the U of Michigan’s decline, and it too is at a post-crash high. One notable point about these indicators though is the split between income groups. Looking at Tuesday’s existing home sales, for example, sales of homes costing less than $1mn were down yoy while only sales of homes above $1mn rose. As for consumer confidence, the gap between people making less than $50k a year and more than $50k a year remains around the highest it’s been since the data began in 1989. The US (like many countries) has a two-tier economy, which may be one reason why some of the economic data is difficult to interpret: the overall numbers can mask significant internal discrepancies because they refer to two different realities.
During the European day, the only data we get are manufacturing confidence data from France and Italy’s consumer confidence figure, both for June.
From the US, we have the third estimate of GDP for Q1 which is expected to decline at a -1.8% qoq SAAR pace, a downward revision from the second estimate of -1.0% qoq. Durable goods orders for May are also expected. The headline figure is forecast to remain unchanged on a mom basis from a downwardly revised +0.6% mom the previous month, while durable goods excluding transportation equipment are estimated to have risen at the same pace on a mom basis, after April’s figure was revised up to 0.3% mom. The Markit service-sector PMI for June is expected to remain unchanged. Overall these figures are not so good. The dollar could weaken slightly if they come in as expected.
We have five speakers on Wednesday’s agenda. RBA Deputy Governor Philip, three ECB Governing Council members -- Carlos Costa, Luis Maria Linde and Jens Weidmann – and San Francisco Fed President John Williams speak.
Currency Titles:
EUR/USD capped by the 200-period MA
EUR/JPY hits the upper bound of the wedge
GBP/USD back below 1.7000
Gold finds resistance at 1325
WTI oscillates between 105.10 and 107.35
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EUR/USD moved in a consolidative mode, remaining between the support bar of 1.3587 (S1) and the 200-period moving average. The RSI stayed below its prior uptrend line, near its neutral level, while the MACD, although in its positive territory, remains below its trigger line. Given that, I would maintain my neutral stance for now. A price dip below the blue short-term support line may confirm the weakness signs provided by our momentum studies and target the psychological zone of 1.3500 (S2). In the bigger picture, the pair is trading below the 200-day moving average, keeping the long-term outlook negative. However, we need a dip below 1.3500 (S2) to reinforce the downtrend.
• Support: 1.3587 (S1), 1.3500 (S2), 1.3475 (S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3790 (R3).
EUR/JPY moved slightly higher to hit the upper boundary of the falling wedge formation. Seeing minor-term negative divergence between our momentum studies and the price action, I cannot rule out some consolidation or a pullback within the formation. However, as long as the rate is trading within the wedge, I would maintain my neutral stance. Only a decisive move out of the pattern could give clearer indications about the pair’s forthcoming direction.
• Support: 138.25 (S1), 137.70 (S2), 100.80 (S3).
• Resistance: 138.90 (R1), 138.25 (R2), 140.00 (R3).
GBP/USD tumbled on Tuesday, falling below the lower bound of the purple upside channel and back below the 1.7000 (R1) barrier, and also confirming the negative divergence between the MACD and the price action. Considering that the MACD, already below its signal line, crossed below its zero line, I would expect the decline to continue, maybe towards the 1.6915 (S1) support zone. However, it’s too early to argue for a trend reversal since we need to see a dip below 1.6915 (S1) to have a forthcoming lower low.
• Support: 1.6915 (S1), 1.6880 (S2), 1.6840 (S3).
• Resistance: 1.7000 (R1), 1.7060 (R2), 1.7100 (R3).
Gold tried to edge higher on Tuesday, but met resistance at 1325 (R1) and then moved lower. The RSI exited overbought conditions, while the MACD remains below its signal line, pointing down. Moreover, on the daily chart, we can identify a shooting star candle, increasing the likelihood for the continuation of the decline. However, as long as the precious metal’s price pattern is higher highs and higher lows above both the moving averages, the technical picture remains positive and I would consider any further declines as a corrective wave, at least for now.
• Support: 1305 (S1), 1285 (S2), 1268 (S3) .
• Resistance: 1325 (R1), 1330 (R2), 1342 (R3).
WTI moved significantly higher after finding support slightly above the 105.10 (S1) zone. Nonetheless, the advance was halted by the 107.35 (R1) resistance. Considering that WTI formed two lows near the 105.10 (S1) support and two peaks near 107.35 (R1), I would consider the new path of WTI to be to the sideways. The negative divergence between our momentum studies and the price action is still in effect, but the price is still trading above both the 50- and the 200-period moving averages. Given the aforementioned mixed signals, I consider the short-term outlook to be neutral. A decisive exit from the sideways path may provide more clues about the forthcoming directional movement of WTI.
• Support: 105.10 (S1), 104.00 (S2), 103.05 (S3).
• Resistance: 107.35 (R1), 108.00 (R2), 110.00 (R3).
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Market Analysis 26/06/2014
Language English
A currency isn’t the stock price of a country. The third revision to the US GDP figures were shocking. GDP was revised down from -1.0% qoq SAAR to -2.9%. There has been only one previous quarter in the post-WWII era when output fell by a similar amount and the economy was not in recession (Q2 1981, -2.9%). Most of the downward revision was because the agency compiling the data used a different source for the data on healthcare spending in this revision, and that other source showed healthcare spending to be much lower. However it’s likely that this is just a question of the timing of payments. If anything, healthcare spending is now likely to be higher because of President Obama’s recent reforms to the US insurance system, which gave health insurance to several million previously uninsured people. The market therefore expects a big bounce back in GDP in Q2. The consensus forecast for Q2 is +3.5% qoq SAAR, according to Bloomberg, and that’s all from forecasts made before the final figure for Q1 was released. Now forecasts are probably north of 4%. Still, the shock lingered. The long end of the Fed Funds futures showed rate expectations down 4 bps, while 10-year yields declined 2 bps on the day.
The shock of the GDP revision was amplified by a lower-than-expected headline figure on US Durable Goods for May, but this was largely attributable to aircraft. The key core durables figure (non-defense capital goods excluding aircraft) was up 0.7% mom vs -1.1% mom in April. This number feeds into the capital spending category in the GDP accounts and so will be another thing boosting Q2 GDP, if it continues. A higher-than-expected Markit service sector PMI for June also helped to calm investors.
It’s noticeable that although interest rates are lower and the dollar is lower almost across the board, stocks in the US closed higher and Asian stock markets are largely higher this morning as well. It appears either that stocks are looking forward to the rebound in growth, or they are more concerned about Fed policy than economics. In the current economic situation, where central banks in effect control the markets, it’s official policy that determines market direction. In that context, bad can be good, if bad means rates will be lower for longer.
In any event, GDP growth is not that important for the direction of the dollar. Our research has found precious little connection between US growth and the performance of the dollar. In fact, if anything it seems that the dollar tends to decline against the euro when US growth is higher than Eurozone growth! That may seem counter-intuitive, but countries aren’t companies and a currency isn’t the stock price of a country. Stronger growth can mean a country spends more and the current account deteriorates (as is happening with Britain right now), while weak growth can mean a county’s imports fall and the current account improves (see the Eurozone peripheral countries). Right now interest rate differentials, particularly real interest rate differentials, are the major source of direction in the FX market. (Note that the only G10 currencies to fall against USD overnight were NOK and SEK, two currencies where the central banks have been revising down their expected rate paths.) It seems pretty clear that the US is likely to begin tightening policy far earlier than the Eurozone is and so I would expect the dollar to recover from this decline in the near future.
In that respect, today’s US personal consumption expenditure (PCE) deflator may be even more important than the GDP figure. The core PCE (PCE excluding energy and food) is forecast to have risen to 1.6% yoy from 1.4% yoy. This is the inflation measure that the Fed targets. In her recent statement, Fed Chair Janet Yellen dismissed the rise in consumer price inflation in the US to 2.1% yoy in May as “noise,” but if the core PCE deflator starts to get close to the Fed’s 2% target, speculation about an earlier hike in rates at the Fed is bound to heat up and the dollar could appreciate as a result. Along with the PCE deflator, personal income and personal spending for May are expected to have accelerated, which could also help to dispel the GDP gloom. Weekly initial jobless claims are forecast to decline, nonetheless, the 4wk moving average is estimated to remain unchanged.
During the European day Thursday, we have June’s consumer confidence index from France, which is expected to have remained unchanged. Sweden’s May PPI is coming out, but no forecast is available. In Norway, the AKU unemployment rate for April is forecast to have risen slightly.
We have three speakers on Thursday’s agenda. BOE Governor Mark Carney speaks in London on the Financial Stability report, and two Fed Presidents – Richmond’s Jeffrey Lacker and James Bullard of St. Louis-- also speak.
Currency Titles:
EUR/USD slightly higher
USD/JPY breaks below the triangle
EUR/GBP breaks above 0.8015
Gold hits 1325 again
WTI continues between 105.10 and 107.35
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EUR/USD moved slightly higher on Wednesday, reaching again the 200-period moving average. If the bulls are willing to drive the battle above the moving average, I would expect them to target the resistance of 1.3685 (R1), which coincides with the 38.2% retracement level of the 8th May- 5th June decline. The RSI started moving higher after finding support at its 50 level, while the MACD, already in its bullish territory crossed above its signal line, increasing the possibilities for more upside. However, it’s too early to argue for a trend reversal and as a result I would consider the recent advance as a correcting phase, at least for now.
• Support: 1.3587 (S1), 1.3500 (S2), 1.3475 (S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3790 (R3).
USD/JPY fell below the lower boundary of the symmetrical triangle but the decline was halted near the 101.60 (S1) zone. As long as the rate remains below the bound of the triangle, I see a mildly bearish picture. A decisive dip below the support of 101.60 (S1) may carry larger bearish implications and pave the way towards the next support hurdle of 101.10 (S2). The MACD left its neutral level and moved lower, crossing below its signal line and amplifying the case for further declines. In the bigger picture, the long-term path of USD/JPY remains to the sideways since we cannot identify a clear trending structure.
• Support: 101.60 (S1), 101.10 (S2), 100.80 (S3).
• Resistance: 101.85 (R1), 102.15 (R2), 102.35 (R3).
EUR/GBP edged above 0.8015, the upper bound of the range that it’s been trading within since the 12th of June. The MACD, already above its trigger line, obtained a positive sign. Given that, I cannot rule out further upside near the blue downtrend line or near the hurdle of 0.8080 (R1), which coincides with the 200-period moving average. Nonetheless, the pair is trading below the blue downtrend line drawn from back the 11th of April, thus I would consider any further upsides as a retracing wave before the bears prevail again. A dip below the 0.7960 (S2) is needed to confirm a forthcoming lower low and trigger the continuation of the downtrend.
• Support: 0.8015 (S1), 0.7960 (S2), 0.7900 (S3).
• Resistance: 0.8080 (R1), 0.8140 (R2), 0.8200 (R3).
Gold tried to edge higher again on Wednesday, but it was stopped once more by the 1325 (R1) resistance bar. The RSI moved lower after exiting overbought conditions, while the MACD remains below its signal line, pointing down. Moreover, on the daily chart, we can identify a shooting star and a spinning top candlesticks, increasing the likelihood for a pullback. However, as long as the precious metal is trading above both the moving averages and above the blue uptrend line, the technical picture remains positive, in my view, and I would consider any further declines as a retracement, at least for now.
• Support: 1305 (S1), 1285 (S2), 1268 (S3) .
• Resistance: 1325 (R1), 1330 (R2), 1342 (R3).
WTI tumbled after hitting the resistance of 107.35 (R1), but rebounded from 105.50 (S1) to trade where we left it yesterday. Considering that WTI continues oscillating between 105.10 (S2) and 107.35 (R1), I still see a sideways path. The MACD crossed above its signal line, but the RSI remains below its downside sloping resistance line. In light of the mixed signals provided by our momentum studies, I would consider the short-term picture to remain neutral. A decisive exit from the sideways path may provide more clues about the forthcoming directional movement of WTI.
• Support: 105.50 (S1), 105.10 (S2), 104.00 (S3).
• Resistance: 107.35 (R1), 108.00 (R2), 110.00 (R3).
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Market Analysis 27/06/2014
Language English
Inflation or no inflation?Yesterday’s US personal consumption expenditure (PCE) deflator came as expected at +1.8% yoy (previous: +1.6%). This indicator, the Fed’s favorite measure of inflation is getting close to the Fed’s target of 2%. Fed Chair Janet Yellen said after the last FOMC meeting that “recent readings on, for example, the CPI index have been a bit on the high side,” but the data are “noisy.” Was yesterday’s rise “noise” or “signal”? Richmond Fed President Lacker yesterday pushed back against Yellen’s comments, saying, “I don’t think the last few months are entirely noise” and that he has “been expecting inflation to firm this year.” St. Louis Fed President Bullard echoed that sentiment, saying that “inflation is picking up now” and adding, “I don’t think financial markets have internalized how close we are to our ultimate goals, and I don’t think the FOMC has internalized how close we are.” This is a big change for Bullard; a year ago he dissented at the FOMC meeting because he felt the Committee was not doing enough to prevent inflation from falling. That shows how much the picture has changed. Bullard also said he favors raising rates in early 2015.
Nonetheless the market ignored these statements and the Fed Funds futures cut another 5.5 bps from rate expectations for 2017 while bond yields declined 2-3 bps across the curve after consumer spending rose less than forecast. The dollar lost ground against most G10 currencies, while it was mixed vs EM.
Personally, I agree with Bullard. “Investors should be listening to the committee,” he said. “They are not.” The market is currently forecasting that the Fed Funds rate will end 2015 around 0.68%, whereas the average forecast of the Committee is almost double that at 1.2%. For end-2016, the market is forecasting 1.69%, a 1 percentage-point increase over the year, while the FOMC is forecasting 2.53%, a 1.33 percentage-point increase. In other words, the FOMC is forecasting that hiking starts earlier and proceeds faster than the market currently assumes. It’s my expectation that the market will gradually start to discount at least the possibility of an earlier hike as inflation moves up and the unemployment rate falls. The question for the FX market though is whether that anticipation will be enough to counter the drop in real interest rates that’s likely to occur as inflation moves up faster than nominal rates.
Japan’s usual end-of-month data dump produced a mixed picture for Japan. The inflation rate rose faster than expected as the effects of the hike in the consumption tax continue to work through to the retail level. On the other hand, household spending collapsed in May, falling even more than it did in April, which is saying a lot. And wages excluding overtime payments and bonuses fell for the 23rd consecutive month. That shows the fatal flaw at the heart of Abenomics: a rising CPI is not the same as inflation. Inflation is a rise in the general price level, including the price of labor. The idea behind getting inflation up in Japan is to try to stimulate economic activity, but if the net result is simply to diminish peoples’ purchasing power, it will never work. Unfortunately the hike in the consumption tax, which raised the CPI rate dramatically, has made further Bank of Japan loosening less likely in the near term. That could mean further strengthening of the yen. Indeed USD/JPY finally broke out of its recent channel overnight on the downside.
NZD rallied to nearly a record high after the country announced a higher-than-expected trade surplus for May, with both exports and imports exceeding expectations. I remain bullish on NZD. The other commodity currencies, AUD and CAD, also gained.
During the European day, the preliminary German CPI for June is expected to have risen 0.7% yoy, up slightly from 0.6% yoy in May. An acceleration in German inflation would further reduce the likelihood that the ECB will unveil any new measures at next week’s meeting and could therefore help shore up the euro. Eurozone’s final consumer confidence for June is also coming out, with no forecast being available. Sweden’s retail sales are forecast to have declined in May after rising in April, and Norway’s registered unemployment rate is expected to have risen to 2.8% in June from 2.7%. Final Q1 GDP estimates for the UK and France will be announced; the forecasts are the same as the previous estimate.
From the US, the only indicator we get is the final U of Michigan consumer confidence sentiment for June. The market forecasts it will be unchanged from the initial estimate.
We have only one speaker on Friday’s agenda. RBA assistant Governor Chris Kent addresses parliament committee on real estate.
Currency Titles:
EUR/USD sees as a hurdle the 200-period MA
EUR/JPY breaks below 138.25
Is GBP/USD ready for a higher high?
Gold rebounds from the 1305 zone
WTI still within a range
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EUR/USD declined after finding resistance near the 200-period moving average, but then it rebounded from our support zone of 1.3587 (S1) and is currently ready for another test near the moving average. If the bulls are willing to drive the battle above the moving average this time, I would expect them to target the resistance of 1.3685 (R1), which coincides with the 38.2% retracement level of the 8th May- 5th June decline. The RSI started moving higher -crossing back above its 50 level and increasing the possibilities for more upside. However, it’s too early to argue for a trend reversal and as a result I would consider the recent advance as a correcting phase, at least for now.
• Support: 1.3587 (S1), 1.3500 (S2), 1.3475 (S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3790 (R3).
EUR/JPY tumbled after hitting the upper boundary of the of the falling wedge formation. The rate fell below the 138.25 hurdle and I would expect the bears to challenge the support of 137.70 (S1). Both our momentum studies moved lower, with the MACD falling below its signal and zero lines. This amplifies the case for the continuation of the decline. Nonetheless, as long as the rate is trading within the wedge, I would maintain my neutral stance as far as the overall picture is concerned. Only a decisive move out of the pattern could give clearer indications about the pair’s forthcoming trending direction.
• Support: 137.70 (S1), 136.75 (S2), 136.20 (S3).
• Resistance: 138.25 (R1), 138.90 (R2), 139.35 (R3).
GBP/USD rebounded from 1.6950 (S2), forming a higher low, and emerged above 1.7000 again. At the time of writing, cable seems ready to challenge the highs of 1.7060 (R1). The next resistance lies at 1.7100 (R2) and if the bulls are strong enough to drive the battle above it, I would expect them to trigger extensions towards the 1.7200 (R3) area. The RSI is back above its 50 level, pointing up, while the MACD is back above its zero and signal lines, amplifying the case for further upside. In the bigger picture, the 80-day exponential moving average provides reliable support to the lows of the price action, keeping the long-term path to the upside.
• Support: 1.7000 (S1), 1.6950 (S2), 1.6915 (S3).
• Resistance: 1.7060 (R1), 1.7100 (R2), 1.7200 (R3).
Gold moved lower on Thursday, and after finding support slightly above the 1305 (S1) barrier, it rebounded to trade virtually unchanged. Given that the yellow metal is trading between that support and the resistance of 1325 (R1) since the 19th of June, I consider the near-term path to be sideways. The RSI rebounded from its 50 barrier and moved higher, while the MACD moved lower remaining below its signal line. The mixed signals provided by our momentum studies corroborate my neutral view, for now. However, as long as the precious metal is trading above both the moving averages and above the blue uptrend line, the overall technical picture remains positive and a clear move above the highs of 1330 (R2) could reinforce the upside path.
• Support: 1305 (S1), 1285 (S2), 1268 (S3) .
• Resistance: 1325 (R1), 1330 (R2), 1342 (R3).
WTI declined yesterday to find support once again near the 105.10 (S2) area. Considering that WTI continues oscillating between that support and the resistance of 107.35 (R1), I still see a sideways path. Both our momentum studies continue moving below their downside resistance lines, while the MACD fell below both its trigger and zero lines. Only a decisive break out of the sideways range may provide more clues about the forthcoming directional movement of WTI.
• Support: 105.50 (S1), 105.10 (S2), 104.00 (S3).
• Resistance: 107.35 (R1), 108.00 (R2), 110.00 (R3).
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Market Analysis 30/06/2014
Language English
A busy week ahead! We have a really busy week ahead of us. The highlights are.
Tuesday: Reserve Bank of Australia meeting. No likelihood of a change in rates, as the RBA itself has said at every meeting this year that “on present indications, the most prudent course is likely to be a period of stability in interest rates.” Indeed, the market is pricing in no change in rates at least out to March 2015. Rather, the focus will be on the RBA’s view of the economy. At the last meeting (3 June), the RBA was relatively upbeat, saying that “growth looks to have been somewhat firmer” and singling out “moderate growth” in consumer demand and “a strong expansion in housing construction.” It repeated its comment that “the exchange rate remains high by historical standards,” adding, “particularly given the further decline in commodity prices.” AUD/USD is only slightly higher since the last meeting (0.94 vs 0.92) so they probably would not come out with a stronger statement. The last several meetings have not had much impact on AUD/USD and I would not expect this one to be much different.
Japan Tankan The Tankan (Bank of Japan Short-Term Survey of Economic Conditions) is expected to show a decline in current sentiment but optimism about the future. The large manufacturers’ index, for example, is forecast to decline to 15 from 17 but the outlook for Q3 is expected to rebound to 17 again. The pattern reflects the fact that the economy slowed in Q2 because of the hike in the consumption tax, but is expected to return to normal by Q3. Thus the forecasts for Q3 will be more important than the result for Q2, in my view. Looking at the market reaction over the last year, USD/JPY moved only slightly higher the last time there was a negative surprise (in April). All four times USD/JPY was at least somewhat lower than before the announcement within 30 minutes after the release.
PMIs for June The day starts with the official China manufacturing PMI for June alongside the final manufacturing PMI from HSBC/Markit. The preliminary HSBC/Markit PMI for the month unexpectedly rose to 50.8 from 49.4 so we can perhaps expect a rise in the official PMI. Then come the June manufacturing PMI for the UK and many of the other European countries as well as the final PMIs for the Eurozone, Germany and France, as well as the ISM index for the US. That’s expected to show a modest rise and a continued high level on the prices-paid index, which could be USD-positive.
Separately, Fed Chair Janet Yellen delivers the inaugural Michel Camdessus Lecture at the IMF, followed by a 30 minute “Conversation” between Yellen and IMF MD Christine Lagarde. Given the IMF and Ms. Lagarde’s view of US policy, this conversation could take a notably dovish turn.
Thursday: The big day of the week:
ECB Policy Board meeting: Following last month’s unprecedented move to institute a negative deposit rate, the first major central bank ever to do so, I think it’s highly unlikely that the ECB would take any further steps this month. Those easing measures won’t even be fully implemented until September, when they hold the first of their targeted long-term refinancing operations (TLTRO). Until that is done and they start to have some idea how the entire package of measures is performing in terms of stimulating lending, the ECB is likely to be on hold. That means several more months (at least) during which the anticipation ahead of the ECB meetings is much less than it was previously and volatility on the day is likely to be much lower than at the last several meetings.
Riksbank meeting: The Riksbank on the other hand is widely expected to lower its repo rate to 0.5% from 0.75%. At the last Executive Board meeting in April they lowered their forecast for the repo path substantially and two of the six Board members voted for a cut in rates, while others said that “even minor revisions to the inflation forecast could affect their view of monetary policy.” The headline CPI has been in deflation all this year, but high household indebtedness and the possibility of a housing bubble have kept the Riksbank from easing. The key then will be not whether they cut rates, but how they see the rate path progressing afterwards – whether they still think there is a chance of further easing or do they assume they are now at the bottom.
Nonfarm payrolls: As Friday is a national holiday in the US (Independence Day), the nonfarm payrolls for June will be released a day earlier than usual. With inflation in the US creeping up towards the Fed’s target level, the employment data are even more important than usual as the main thing left standing between the FOMC and a rate hike. The market is going for a 215k increase in NFP, about the same as in May (217k), while the unemployment rate is expected to stay at 6.3%. Generally speaking, it’s a 50-50 bet whether the figure beats or misses expectations (20 beats vs 21 misses since 2011) so we can’t recommend taking a position on the figure itself, but it is noticeable that over the last year, on average the dollar has wound up being weaker in the week after the NFP regardless of whether the figure beat or missed expectations (this did not work last month, however).
Today’s events: The Eurozone CPI is expected to stay at +0.5% yoy, with the core rate also forecast to remain at 0.7% yoy. Normally no change from such a low rate could be expected to weaken the euro, but with the ECB likely to be on hold, inflation would have to change dramatically in order for it to be market-affecting. Germany’s retail sales for May are expected to have risen 0.8% mom, after declining 0.9% in April. Eurozone’s M3 money supply is forecast to have risen 0.8% yoy in May, the same pace as in April. The 3-month moving average however will decelerate if the forecast is met.
From the UK, BOE mortgage approvals are estimated to have decreased to 61.7k in May from 62.9k in April. The indicator has become even more important after Governor Carney’s latest comments to cap mortgages in order to cool the housing market and the new rules introduced by the Financial Policy Committee on lenders and new borrowers.
Canada’s GDP is expected to have increased by 0.3% mom in April, an acceleration from +0.1% in March, driving the yoy rate up to 2.3% from 2.1%.
In the US, the Dallas Fed manufacturing activity index for June is estimated to have increased, while the Chicago purchasing managers’ index for the same month is forecast to have decreased. Pending home sales for May are expected to have accelerated 1.2% mom, from +0.4% in April, although that would bring down the yoy pace slightly.
Currency Titles:
EUR/USD moves above the 200-period moving average
USD/JPY extends declines after exiting the triangle
EUR/GBP still in a retracing mode
Gold still within a short-term range
WTI remains neutral
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EUR/USD edged higher on Friday, breaking above the 200-period moving average. The RSI continued moving higher after crossing above its 50 level, while the MACD lies above both its zero and trigger lines. Since the pair is still trading above the near-term blue support line and in light of the positive signs provided by our momentum studies, I would expect the bulls to drive the rate towards the resistance bar of 1.3685 (R1), which coincides with the 38.2% retracement level of the 8th May- 5th June decline. However, it’s too early to argue for a trend reversal and as a result I would consider the recent advance as a correcting phase, at least for now.
• Support: 1.3587 (S1), 1.3500 (S2), 1.3475 (S3).
• Resistance: 1.3685 (R1), 1.3745 (R2), 1.3790 (R3).
USD/JPY tumbled after breaking below the 101.60 barrier. If the bears are willing to continue pushing the rate lower, I would expect them to target the support hurdle of 101.10 (S1). A decisive dip below that level could pave the way towards 100.80 (S2). As long as the rate remains below the lower bound of the symmetrical triangle, I see a negative short-term picture. Nonetheless, 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), 100.00 (S3).
• Resistance: 101.60 (R1), 101.85 (R2), 102.15 (R3).
EUR/GBP rebounded from the purple short-term support line and at the time of writing is heading towards the resistance obstacle of 0.8030 (R1). The MACD, already in its positive territory, poked its nose above its signal line, while the RSI crossed above its 50 level. Given that, I cannot rule out further upside near the blue downtrend line or near the hurdle of 0.8080 (R2). Nonetheless, the pair is trading below the blue downtrend line drawn from back the 11th of April, thus I would consider any further upsides as a retracing wave before the bears prevail again. A dip below the 0.7960 (S1) is needed to confirm a forthcoming lower low and trigger the continuation of the downtrend.
• Support: 0.7960 (S1), 0.7900 (S2), 0.7830 (S3).
• Resistance: 0.8030(R1), 0.8080 (R2), 0.8140 (R3).
Gold moved slightly lower, remaining within the short-term trading range between the support barrier of 1305 (S1) and the resistance of 1325 (R1). Given that, I would maintain my neutral stance as far as the near-term picture is concerned. However, as long as the precious metal is trading above both the moving averages and above the blue uptrend line, the overall technical picture remains positive. A clear move above the highs of 1330 (R2) could reinforce the upside path.
• Support: 1305 (S1), 1285 (S2), 1268 (S3) .
• Resistance: 1325 (R1), 1330 (R2), 1342 (R3).
WTI moved in a consolidative mode, remaining near the levels we left it on Friday. Considering that WTI continues trading between the support of 105.10 (S1) and the resistance of 107.35 (R1), I still see a sideways path. Both our momentum studies continue moving below their downside resistance lines, while the MACD fell below both its trigger and zero lines. Although our momentum studies favor further declines, only a decisive break out of the sideways range could provide more clues about the forthcoming directional movement of WTI.
• Support: 105.10 (S1), 104.00 (S2), 103.05 (S3).
• Resistance: 107.35 (R1), 108.00 (R2), 110.00 (R3).
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Market Analysis 01/07/2014
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A currency isn’t the stock price of a country Many people assume that when a country’s economic fundamentals improve, the currency should appreciate. That’s probably based on the idea that a currency is like a stock. When a company’s results increase, usually the stock price goes up. The same thing should happen with a country. But it’s not necessarily true, and we saw that overnight with USD. The economic news was as usual favorable, but that didn’t matter to the market. Pending home sales for May were much much higher than expected -- +6.1% mom instead of the market consensus of +1.5%, and far higher than +0.4% in April. This suggests that the economy is indeed recovering from the disappointing first quarter, and that GDP will be higher in Q2 than in Q1, because housing sales add to GDP (real estate brokers’ commissions and all that). The Chicago PMI disappointed but the three-month average is still the highest for several years and the details were solid. Meanwhile the Dallas Fed manufacturing survey was better than expected. There was also a speech by San Francisco Fed President Williams, who said he expected GDP to run around 3% for the rest of the year, a fairly healthy pace, and for the unemployment rate to hit 6% by the end of the year. Yet bond yields declined by 1 or 2 bps, as did the implied interest rate on Fed Funds futures, and the dollar weakened against most of the G10 currencies. Month-end buying may have been responsible; we’ll have to see whether any of the move is reversed over the coming week.
The one exception was the yen, which weakened as a somewhat better-than-expected Tankan report sent Japanese stocks higher. The current conditions were in several cases weaker than expected, but the expectations for Q3 were generally in line with or even better than expectations. Particularly encouraging was the jump in large manufacturers’ capital spending predictions. There was also a rise in the output price index, indicating that deflationary pressures are decreasing. However, the tankan did not indicate much upward pressure on wages, so I personally doubt the Bank of Japan’s scenario that inflation will pick up in the second half of the year (unless the yen begins weakening again). Already break-even inflation rates on index-linked Japanese government bonds show that the market does not expect inflation to hit the BoJ’s 2% target. I also have reservations about how successful PM Abe’s “Third Arrow” of structural reform will be. The net result is that I still think the BoJ will have to take further steps later this year to loosen policy further, which will weaken the yen.
The Reserve Bank of Australia (RBA) kept rates steady at 2.5%, as was universally expected. I could discern no significant differences at all between the statement this time and last time. AUD/USD moved up around 20 bps, perhaps on relief that they didn’t come out with any stronger statement about the AUD.
Today is PMI day. It started in China, where the official manufacturing PMI for June increased exactly in line with market expectations to 51.0 from 50.8. The final manufacturing PMI for June from HSBC/Markit however was revised down slightly, although it remained above the crucial 50 barrier. It was notable that AUD/USD barely moved when the figure was released. Perhaps AUD is becoming less sensitive to Chinese economic news and more sensitive to domestic factors.
Later we get the manufacturing PMI figures for June from several European countries, the Eurozone as a whole, the UK and the US. As usual, the final forecasts for the French, the German and Eurozone’s figures are the same as the initial estimates. The UK manufacturing PMI is estimated to be slightly down to 56.8 from 57.0, while in the US, the ISM manufacturing PMI is expected to have risen to 55.8 from 55.4. That could prove USD-supportive, except yesterday’s good US indicators failed to support the dollar so one wonders if today’s will.
Besides the PMIs, we have the German unemployment rate for June and Eurozone’s unemployment rate for May. Both rates are expected to have remained unchanged at 6.7% and 11.7% respectively.
Only one speaker is scheduled on Tuesday’s agenda. ECB Governing council member Ewald Nowotny, speaks at a briefing with IMF about the Fund’s review of Austria.
Currency Titles:
EUR/USD reaches the 1.3690 zone
EUR/JPY breaks the upper bound of the wedge
GBP/USD above 1.7100
Gold breaks out of the range
WTI keeps the sideways path intact
Currencies Image Url:
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Currencies Text:
EUR/USD moved higher on Monday reaching the 38.2% retracement level of the 8th May- 5th June decline. The MACD lies above both its zero and signal lines, but the RSI seems ready to exit its overbought zone. As a result, I would expect the forthcoming wave to be to the downside, maybe for a test near the blue upside support line. Since the pair is still trading above that near-term support line, I consider the upside correcting phase to remain in effect. Only a dip below 1.3587 (S1) may signal that the retracement is over and pave the way towards the key support of 1.3500 (S2).
• Support: 1.3587 (S1), 1.3500 (S2), 1.3475 (S3).
• Resistance: 1.3690 (R1), 1.3745 (R2), 1.3790 (R3).
EUR/JPY moved higher yesterday, violating the upper boundary of the falling wedge formation. The advance was halted by our resistance barrier of 138.90 (R1), where an upside violation may confirm the exit of the wedge pattern and trigger extensions towards the 140.00 (R3) psychological zone. Both our momentum studies moved higher, with the MACD crossing above its signal and zero lines. This confirms the recent bullish momentum and increases the possibilities for further advance in the near future. In the bigger picture, the long-term path of the rate remains to the sideways since we cannot identify a clear trending structure.
• Support: 138.25 (S1), 137.70(S2), 136.75 (S3).
• Resistance: 138.90 (R1), 139.35 (R2), 140.00 (R3).
GBP/USD surged on Monday, breaking above the hurdle of 1.7060 and confirming a forthcoming higher high. The rally was halted by the resistance bar at 1.7115 (R1), where a decisive upside violation could pave the way towards the 1.7200 (R2) zone. The MACD lies above both its trigger and zero lines, but the RSI seems ready to exit its overbought territory. Having that in mind, I would expect some consolidation or a pullback before the longs take control again. In the bigger picture, the 80-day exponential moving average provides reliable support to the lows of the price action, keeping the long-term path to the upside.
• Support: 1.7060 (S1), 1.7000 (S2), 1.6950 (S3).
• Resistance: 1.7115 (R1), 1.7200 (R2), 1.7300 (R3).
Gold emerged above 1325, the upper boundary of the short-term sideways path it has been trading since the 19th of June. The precious metal is now trading below the resistance of 1330 (R1) and if the bulls are willing to overcome that barrier, I would expect them to trigger extensions towards the next obstacle at 1342 (R2). The MACD, already within its positive territory, crossed above its trigger line, while the RSI moved higher after finding support at its 50 level, amplifying the case for the continuation of the advance. As long as the metal is trading above both the moving averages and above the blue uptrend line, the overall technical picture remains positive.
• Support: 1325 (S1), 1305 (S2), 1285 (S3) .
• Resistance: 1330 (R1), 1342 (R2), 1350 (R3).
WTI declined and tried to break below the 105.10 (S1) support, but failed to do so and remained within the range between that barrier and the resistance of 107.35 (R1). Since the short-term path of oil remains to the sideways, I still see a neutral picture. Only a decisive break out of the sideways range could provide more clues about the forthcoming directional movement of WTI.
• Support: 105.10 (S1), 104.00 (S2), 103.05 (S3).
• Resistance: 107.35 (R1), 108.00 (R2), 110.00 (R3).
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Market Analysis 02/07/2014
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Odd movements in AUD. AUD got a small boost yesterday after the Reserve Bank of Australia kept both its rates and its view essentially unchanged at its monthly meeting. Then at the US opening there was a large run-up in the currency for no clear reason that I could discern, just accelerating momentum from European interest. Overnight however the Australian trade balance for May came in much, much worse than expected at AUD -1.9bn instead of the expected AUD -200mn and AUD/USD came back down somewhat. Still, the currency is the biggest gainer against USD over the last 24 hours among the G10 currencies. Nonetheless I think this news is indicative of the problems that Australia faces in the near future and I would expect AUD to weaken as a result. In New Zealand, the milk auction went poorly again, with the average auction price down 5.4% from the previous auction to the lowest level since 2013. In NZD terms, the milk price is down 35% this year. This too is indicative of reduced demand from China and shows the problems facing both of these commodity producers. NZD however has the benefit of rising interest rates to support it while Australia’s rates are on hold indefinitely. There is a risk though for New Zealand that if commodity prices remain weak, the Reserve Bank of New Zealand could put its tightening program on hold after the next RBNZ meeting on 24 July. That would probably send the currency lower.
This morning, it was announced that the UK nationwide house price index rose 1.0% mom in June, beating market forecasts of a 0.5% mom rise. The UK construction PMI for June is forecast to have fallen slightly to 59.8 from 60.0. Eurozone’s PPI is estimated to have seen no changes in May, after declining 0.1% mom in April.
In the US, we have the ADP employment report, one day ahead of the NFP release as it is a national holiday in the US on Friday. The ADP report is expected to show that the private sector gained 205k jobs in June from 179k the previous month, close to the 215k NFP forecast. US factory orders for June are expected to be down slightly mom. MBA mortgage approvals for the week ended on June 27 are also coming out.
From Canada, the RBC Manufacturing PMI for June is expected with no forecast available.
We have three speakers scheduled on Wednesday. Bank of England Executive Director Andrew Haldane and RBA Assistant Governor of Financial Markets Guy Debelle speak at a conference in London. Fed Chair Janet Yellen delivers the inaugural Michel Camdessus Lecture at the IMF, followed by a 30 minute “Conversation” between Yellen and IMF MD Christine Lagarde. Given the IMF and Ms. Lagarde’s view of US policy, this conversation could take a notably dovish turn.
Currency Titles:
EUR/USD remains near the 1.3690 zone
USD/JPY turns neutral
EUR/GBP finds resistance near 0.8030
Gold consolidates below 1330
WTI within a near-term downside channel
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http://shared.ironfx.co.uk/morning_pictures_2014/02July2014/EURUSD_02July2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/02July2014/USDJPY_02July2014.PNG
http://shared.ironfx.co.uk/morning_pictures_2014/02July2014/EURGBP_02July2014.PNG
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Currencies Text:
EUR/USD moved in a consolidative mode on Tuesday, remaining near the 38.2% retracement level of the 8th May- 5th June decline. The RSI exited overbought conditions, while the MACD seems ready to cross below its signal line. In light of the signs provided by our momentum studies, I would expect the forthcoming wave to be to the downside, maybe for a test near the blue upside support line. Since the pair is still trading above that near-term support line, I consider the upside correcting phase to remain in effect. Only a dip below 1.3587 (S1) may signal that the retracement is over and could pave the way towards the key support of 1.3500 (S2).
• Support: 1.3587 (S1), 1.3500 (S2), 1.3475 (S3)
• Resistance: 1.3690 (R1), 1.3745 (R2), 1.3790 (R3)
USD/JPY moved higher after finding support at 101.22 (S1), but the advance was halted by the resistance barrier of 101.60 (R1) and the 50-period moving average. Having in mind that the possibility for a lower high still exist, I would adopt a neutral stance for now. Only a clear move above 102.15 (R3) could turn the short-term outlook positive. In the bigger picture, the long-term path of USD/JPY remains to the sideways since we cannot identify a clear trending structure.
• Support: 101.22 (S1), 100.10 (S2), 100.80 (S3)
• Resistance: 101.60 (R1), 101.85 (R2), 102.15 (R3)
EUR/GBP tumbled after finding resistance near the 0.8030 (R1) area. The pair fell below the purple short-term support line and at the time of writing is heading towards the 0.7960 (S1) barrier. A decisive dip below that support could target the next one at 0.7900 (S2). The rate is trading below the blue downtrend line drawn from back the 11th of April, and as a result I consider the downside path to remain intact. However, a dip below the 0.7960 (S1) is needed to confirm a forthcoming lower low and carry larger bearish implications.
• Support: 0.7960 (S1), 0.7900 (S2), 0.7830 (S3)
• Resistance: 0.8030(R1), 0.8080 (R2), 0.8140 (R3)
Gold moved in a consolidative mode, remaining within the tight range between the support of 1325 (S1) and the resistance of 1330 (R1). As long as the metal is trading above both the moving averages and above the blue uptrend line, the overall technical picture remains positive and a clear break of the 1330 (R1) hurdle could trigger extensions towards the next obstacle at 1342 (R2). Nonetheless, considering that the RSI moved lower after finding resistance below its 70 level and that the MACD seems ready to cross below its trigger line, I cannot rule out a pullback below the 1325 (S1) support level before the bulls prevail again.
• Support: 1325 (S1), 1305 (S2), 1285 (S3)
• Resistance: 1330 (R1), 1342 (R2), 1350 (R3)
WTI declined on Tuesday, after hitting the resistance of 106.05 (R1), but the decline was halted at 104.60 (S1). The price seems to have started following a near-term downside path, since it is trading within the purple downward slopping channel. However, since WTI is trading above the 200-period moving average and since I can identify positive divergence between our hourly momentum studies and the price action on the 1-hour chart, I maintain my neutral stance.
• Support: 104.60 (S1), 104.00 (S2), 103.05 (S3)
• Resistance: 106.05 (R1), 107.35 (R2), 108.00 (R3)
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Market Analysis 03/07/2014
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Today’s the dayThere are several big things on the schedule today and an unusual number of smaller ones as well:
ECB Policy Board meeting: Following last month’s radical moves, I think it’s highly unlikely that the ECB would take any further steps this month. The easing measures that it announced last month won’t even be fully implemented until September, when they hold the first of their targeted long-term refinancing operations (TLTRO). The ECB is likely to be on hold until they start to have some idea how the entire package of measures is performing in terms of stimulating lending. That means several more months (at least) during which the anticipation ahead of the ECB meetings is much less than it was previously and volatility on the day is likely to be much lower than at the last several meetings.
The focus today will probably be on the details of the TLTRO, which have not yet been made clear. The big question is going to be how restrictive the terms are – how much “conditionality” there is. The more restrictive the conditions are, the less money banks will have available for other investments, such as buying bonds of the peripheral European countries (one of the main uses of the previous LTRO). The impact on the euro is debatable. On the one hand, if it looks like the funds will be available to buy bonds, then outside investors may rush in to front-run these purchases and the euro might strengthen. In other words, the less conditionality is attached to the funds, the better for the euro near-term. On the other hand, the more conditionality is attached to the funds, the fewer loans the banks are likely to make. That means less balance sheet expansion by the banks and the ECB, lower inflation expectations, and higher real yields, which would be bullish for the euro longer-term. Plus the yield on peripheral bonds would probably rise (as has been happening recently, perhaps in anticipation of relatively strict conditionality), thereby making these bonds more attractive to investors. In sum, I think that loose conditions attached to the loans could be bullish for the euro short-term, while strict conditions could be bullish longer term.
Riksbank meeting: The Riksbank on the other hand is widely expected to lower its repo rate to 0.5% from 0.75%. The headline CPI has been in deflation all this year, but high household indebtedness and the possibility of a housing bubble have kept the Riksbank from easing. The key then will be not whether they cut rates, but how they see the rate path progressing afterwards – whether they still think there is a chance of further easing or do they assume they are now at the bottom. The market has not yet priced in any easing past this month, but if inflation remains low, the Riksbank could lower rates further, which would tend to weaken the SEK – which is what I expect.
Nonfarm payrolls: With inflation in the US creeping up towards the Fed’s target level, the employment data are even more important than usual as the main thing left standing between the FOMC and a rate hike. Before yesterday’s ADP report, the market was going for a 215k increase in NFP, about the same as in May (217k). However after the ADP report came with a much higher-than-expected 281k, many firms revised up their forecasts for NFP to around 230k. Expected interest rates on Fed Funds for mid-2016 and later rose by 6 bps, so a good figure is already discounted in the market. The unemployment rate is expected to stay at 6.3%.
Wage growth will also be important. Fed Chair Janet Yellen has pointed to wages as an indicator of tightness in the labor market. That is, if the wages are not rising, then by definition the labor market is still slack. Average hourly earnings are expected to rise by 1.9% yoy in June, a slowdown from 2.1% yoy in May, which would tend to confirm that there is still slack in the labor market and the Fed has yet to achieve its goals.
For those interested in playing the figures, USD/JPY is probably the most appropriate currency pair to use as it is the one that sees the most increase volatility. EUR/USD and GBP/USD see much less of an increase in volatility, particularly on negative surprises. I don’t recommend taking a position ahead of the figures as it’s usually a 50-50 bet whether they beat or miss expectations. However there do seem to be patterns after the figures come out. Generally speaking, when the figure beats expectations, USD/JPY seems to make its peak around 20 minutes after the announcement, and then retreats somewhat, while if the figure is worse than expected, it seems that USD/JPY plunges in the first five minutes or so after the number but then tends to rebound. Of course past performance is no guarantee of future performance and a trading strategy that was successful in the past might not be successful in the future.
Also to be released are the service-sector PMIs for June from the countries we got the manufacturing data for on Tuesday. The UK service-sector PMI is expected to have declined, while in the US, the ISM non-manufacturing index for the month is expected to remain unchanged.
In the US, initial jobless claims for the week ended June 28 is estimated to be more or less in line with the forecast, while trade deficit is anticipated to have slightly narrowed in May, although the employment data will take precedence over these.
As for speakers, ECB President Mario Draghi is a busy man today! Besides his press conference after the ECB meeting, he speaks at an event with German Chancellor Angela Merkel and Irish Prime Minister Enda Kenny, and another event with German Finance Minister Wolfgang Schaeuble. RBA Governor Glenn Steve also speaks.
Currency Titles:
EUR/USD lower after the 1.3690 resistance zone
EUR/JPY rebounds from the 138.50 area
GBP/USD continues higher
Gold pulls back below 1325
WTI finds support at 104.00
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Currencies Text:
EUR/USD moved lower on Wednesday, after consolidating near the 38.2% retracement level of the 8th May- 5th June decline. The rate remains above both the moving averages and above the blue support line, keeping the upside correcting phase in effect. Nonetheless, the MACD fell below its trigger line, while the RSI crossed below its 50 barrier. In light of the mixed signs provided by our technical studies, I would see a neutral picture for now. A rebound near the blue support line may target once again the 1.3690 (R1) resistance zone, while a dip below 1.3587 (S1) may signal that the retracement is over and could pave the way towards the key support of 1.3500 (S2).
• Support: 1.3587 (S1), 1.3500 (S2), 1.3475 (S3).
• Resistance: 1.3690 (R1), 1.3745 (R2), 1.3790 (R3).
EUR/JPY rebounded from the 138.50 area, remaining above the upper boundary of the falling wedge formation. As long as the rate is trading above the upper bound of the pattern, I see a positive short-term technical picture, and a decisive move above the 139.35 (R1) resistance hurdle could trigger extensions towards the psychological barrier of 140.00 (R2). Both our momentum studies moved higher, with the MACD remaining above its signal and zero lines. This confirms the recent bullish momentum and increases the possibilities for further advance in the near future. In the bigger picture, the long-term path of the rate remains to the sideways since we cannot identify a clear trending structure.
• Support: 138.50 (S1), 138.00 (S2), 137.70 (S3).
• Resistance: 139.35 (R1), 140.00 (R2), 141.00 (R3).
GBP/USD emerged above the 1.7115 barrier but the advance was halted at 1.7175 (R1). The next resistance hurdle is at 1.7200 (R2) where a decisive upside violation could pave the way towards the 1.7300 (R3) zone. Considering though that the RSI exited its overbought territory and that the MACD fell below its signal line, I would expect some consolidation or a pullback before the longs take control again. In the bigger picture, the 80-day exponential moving average provides reliable support to the lows of the price action, keeping the long-term path to the upside.
• Support: 1.7115 (S1), 1.7060 (S2), 1.7000 (S3).
• Resistance: 1.7175 (R1), 1.7200 (R2), 1.7300 (R3).
Gold moved below the 1325 barrier yesterday. Having in mind the negative divergence between our momentum studies and the price action, I cannot rule out the continuation of the decline, maybe towards the support of 1305 (S1). Nevertheless, as long as the precious metal is trading above both the moving averages and above the blue uptrend line, the overall technical picture remains positive and I would see any further declines a renewed buying opportunity, at least for now. On the daily chart, we can identify a spinning top candle followed by a doji. This amplifies the case for the continuation of the pullback.
• Support: 1305 (S1), 1285 (S2), 1268 (S3) .
• Resistance: 1325 (R1), 1330 (R2), 1342 (R3).
WTI tumbled on Wednesday, breaking below the 104.60 barrier and reaching our next support at 104.00 (S2), near the lower boundary of the purple downward sloping channel. The MACD remains below both its zero and trigger lines, while the RSI fell below its 50 level, confirming the recent bearish momentum. As long as WTI is printing lower highs and lower lows within the downward sloping channel, the short-term outlook is to the downside. However, zooming on the 1-hour chart, the 14-hour RSI found support at its 30 level and is pointing up, while the hourly MACD seems ready to cross above its trigger line. As a result, I would expect the forthcoming wave to be an upside corrective wave within the downtrend channel.
• Support: 104.00 (S1), 103.05 (S2), 101.85 (S3).
• Resistance: 104.60 (R1), 106.05 (R2), 107.35 (R3).
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