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Market Analysis 06/11/14
Language English
ECB to take center stage The European Central Bank seems unlikely to announce new policies at today’s meeting. The Bank has signaled that they will probably take time to assess the impact of stimulus measures announced in the recent months, especially after the first estimate of the region’s CPI showed a rise in the inflation rate. The rise in October’s estimate CPI could be a sign that the stimulus measures announced in June and September are starting to have some positive impact, although it will clearly take time for all the measures to take full effect. Since the ECB stress test and the Asset Quality Review (AQR) are out of the way, the main reason we believe that there will be no new announcements, is because the focus will now turn to the demand side of the loan story in the region. Any low take-up in December’s TLTRO allotment would highlight this fact and signal the need for additional measures.
Meanwhile, even though no new easing measures are expected there are two key points to watch at the press conference following the policy rate decision. The first point of interest will be any reference over the speculation that the ECB is considering to buy corporate bonds. This could weaken the euro as this is likely to increase the Bank’s balance sheet size. The other key point will be any comments over the report that National central bankers are set to challenge ECB President on his leadership style. I believe that the investors’ concern is not over the disagreement between the members, as this is normal behavior, but on their ability to achieve their balance sheet size target. Any reference on the above matters from the ECB President during the press conference following the decision, will give more insight on their ability to meet their primary objective, to maintain price stability.
Elsewhere, Australia’s unemployment rate remained stable at 6.2% in October, its highest level in almost 12-years. The data reflect a soft labor market and confirm the Reserve Bank of Australia’s concerns that unemployment has some time yet before it declines consistently. Weakening fundamentals are expected to weigh on AUD and are likely to keep it under selling pressure.
On Wednesday, the US ADP report once again indicated job growth over 200k but the US ISM non-manufacturing index disappointed and declined in October. However, the moderate decline was not enough to reverse the positive sentiment towards USD which was higher against almost all of its major peers during the early European morning. I believe the dollar is likely to strengthen even more, especially if the labor data on Friday come strong.
As for today’s events,besides the ECB, the Bank of England meets to decide on its policy rate. The BoE is unlikely to change policy and therefore the impact on the market as usual should be minimal. The minutes of the meeting however should make interesting reading when they are released on 12th of November.
As for the indicators, in the UK, industrial production for September is forecast to rise on a monthly basis, but given the decline in September’s manufacturing PMI, we could see a weaker reading.
From the US, we get the initial jobless claims for the week ended November 1.
In Canada, building permits for September are coming out.
Besides ECB President Draghi press conference, we have three speakers scheduled on Thursday: Riksbank Deputy Governor Martin Floden, Chicago Fed President Charles Evans speaks and Fed Governor Jerome Powell speak.
Currency Titles:
EUR/USD back near 1.2500
USD/JPY reaches the psychological zone of 115.00
AUD/USD breaks below 0.8640
Gold dips below 1160
WTI challenges the 79.40 line as a resistance
Currencies Image Url:
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http://shared.ironfx.co.uk/morning_pictures_2014/06November2014/USDJPY_06Nov2014.PNG
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http://shared.ironfx.co.uk/morning_pictures_2014/06November2014/CLZ4_06Nov2014.PNG
Currencies Text:
EUR/USD slid yesterday, found support slightly above 1.2435 (S1), and rebounded to trade near the 1.2500 line again. Taking a look at our momentum studies, I cannot rule out further rebound. The RSI is pointing up and is heading again towards its 50 line, while the MACD stays above its trigger and is pointing somewhat up. On the daily chart, the price structure remains lower peaks and lower troughs below both the 50- and the 200-day moving averages, and this keeps the overall down path intact. Nevertheless, bearing in mind that I still see positive divergence between our daily oscillators and the price action, I would prefer to maintain my flat approach for now and wait for momentum and price action to confirm each other.
• Support: 1.2435 (S1), 1.2400 (S2), 1.2300 (S3)
• Resistance: 1.2580 (R1), 1.2635 (R2), 1.2765 (R3)
USD/JPY continued climbing on Wednesday, to find resistance 50 pips above the psychological line of 115.00 (R1). I will retain the view that the overall path of this pair is to the upside, but at this point I would expect a downside corrective move before the bulls pull the trigger again. Perhaps towards the 113.10 (S2) line, which coincides with the 23.6% retracement level of the 15th of October – 6th November up leg. The exhaustion of the recent rally is printed on our momentum indicators. The RSI moved lower and is ready to exit its overbought territory, while the MACD remains below its signal line. I also see negative divergence between both the studies and the price action.
• Support: 114.00 (S1), 113.10 (S2), 112.30 (S3)
• Resistance: 115.00 (R1), 115.50 (R2), 118.00 (R3)
AUD/USD plunged on Wednesday, breaking below 0.8640 (R1), the lower bound of the sideways range it’s been trading recently. In my view, this move shifts the bias back to the downside. The rate reached our next support line of 0.8565 (S1), where a dip could challenge the psychological line 0.8500 (S2). A break below the latter line is the move that could pull the trigger for a larger leg down. Perhaps towards the 0.8300 (S3) area, defined by the lows of July 2010. Nonetheless, our short-term oscillators suggest that we may see a minor upside corrective move before the bears take the reins again. The RSI exited its oversold field and is pointing up, while the MACD shows signs of bottoming. In the bigger picture however, our daily indicators support the negative overall outlook. The 14-day RSI moved lower after finding resistance at its 50 line, while the daily MACD, already negative, crossed below its trigger line.
• Support: 0.8565 (S1), 0.8500 (S2), 0.8300 (S3)
• Resistance: 0.8640 (R1), 0.8760 (R2), 0.8650 (R3)
Gold tumbled yesterday, falling below the support (turned into resistance) of 1160 (R1), which happens to be the 61.8% retracement level of the October 2008 – September 2011 major advance. The decline was halted at 1137 (S1), but since the price structure still suggest a downtrend, I would expect another leg down and a test at the low of the 19th of April 2010, at 1125 (S2). Nevertheless, checking out short-term oscillators, I see that the RSI appears ready to exit its oversold field, while the MACD, although negative, seems willing to move above its signal line. Furthermore, I see positive divergence between both the indicators and the price action. Hence, I would be careful of a possible upside corrective wave before the next leg down.
• Support: 1137 (S1), 1125 (S2), 1100 (S3)
• Resistance: 1160 (R1), 1180 (R2), 1205 (R3)
WTI rebounded to challenge the 79.40 (R1) line as a resistance this time. I would keep the view that as long as this line holds as a resistance, the possibility for a lower high still exists and that the near-term outlook is cautiously negative. If sellers manage to take control near the 79.40 (R1) line, I would expect them to challenge again the barrier of 76.00 (S2), where a dip could challenge the psychological zone of 75.00 (S3), defined by the lows of October 2010. On the daily chart, the price structure remains lower lows and lower highs below both the 50- and the 200- day moving averages, keeping the overall trend to the downside.
• Support: 77.50 (S1), 76.00 (S2), 75.00 (S3)
• Resistance: 79.40 (R1), 81.00 (R2), 83.50 (R3)
Benchmark Currency Rates:
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Market Analysis 07/11/14
Language English
ECB unanimous on its 1 trillion expansion The European Central Bank left its key policy rates unchanged, as was universally expected. At the post-meeting press conference, the ECB’s Draghi said that they have started purchasing covered bonds and will soon start to purchase asset-backed securities. The programmes are expected to last for at least two years and together with the TLTROs will have a sizeable impact on the Bank’s balance sheet. On this, the ECB President confirmed that the specific balance sheet target is the March 2012 level. This means that the expansion should be about 1 trillion euros and should expand under all circumstances. The Governing Council is committed to use additional measures and has tasked its staff to start working to ensure further measures to stimulate the Eurozone economy. Regarding the reports over the tensions between the Bank’s members, the President said that such arguments are a normal part of “healthy diversity”. He also pointed out that today’s statement was signed by the entire governing council. In fact, the word “unanimously” was emphasized several times during the speech in an effort to remove allegations over his leadership style. On top of the downward revision on the bloc’s economic outlook by the European Commission, the ECB sees indications for downward revisions of its forecasts as well. This could add further selling pressure on EUR, which fell below 1.2400 against the dollar and remained fractionally below that level.
In the US, initial jobless claims fell to 278k from 288k previously, suggesting that the labor market is gaining steam. This pushed the closely watched 4 week moving average down to 279k from 281k before, the lowest reading since April 2000. The decline in the jobless claims follows the strong ADP report on Wednesday, which fuels the optimism for a strong nonfarm payrolls print on Friday.
As for today’s indicators, the highlight of the day will be the US non-farm payrolls for October. The market consensus is for a 235k rise, down from the unexpected increase of 248k in September. At the same time, the US unemployment rate for October is forecast to have remained unchanged at 5.9%, while average hourly earnings for the same month are expected to have accelerated on a yoy basis. The strong employment data are consistent with the FOMC report saying that the underutilization in the labor market is "gradually diminishing”. Thus, a strong NFP reading, along with an anticipated decline to a near six-year low unemployment rate, should add to the recent robust employment data and boost USD further.
In Europe, we get industrial production figures for September from Norway with no forecast available.
Canada’s unemployment rate for October is expected to increase to 6.9% from 6.8% previously. However, the point of interest will be the change in employment for the same month, which is expected to turn to negative again. For the last couple of months the employment figure has been switching from positive to negative and back again. If this pattern continues and the release misses the estimate, we will most likely see CAD weakening like the previous times.
As for speakers, Fed Chair Janet Yellen and Bank of England Governor Mark Carney speak at a conference but at different times. Chicago Fed President Charles Evans also speaks.
Currency Titles:
EUR/USD breaks below 1.2400 after President Draghi’s comments
GBP/JPY declines after finding resistance at 184.30
NZD/USD dips below 0.7700
Gold consolidates marginally above 1137
WTI declines after testing the 79.40 line
Currencies Image Url:
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http://shared.ironfx.co.uk/morning_pictures_2014/07November2014/CLZ4_07Nov2014.PNG
Currencies Text:
EUR/USD collapsed yesterday breaking below the 1.2400 support (turned into resistance) line as ECB President said that the Bank is unanimous in commitment to act again if needed. The dip below 1.2400 confirms a forthcoming lower low and keeps the near-term bias to the downside. Today we get the US nonfarm payrolls for October, where a strong print is likely to enlarge the negative momentum of the pair and perhaps pave the way for our support area of 1.2250 (S1), defined by the lows of August 2012. On the daily chart, the price structure remains lower peaks and lower troughs below both the 50- and the 200-day moving averages. Hence, I would consider the overall outlook of EUR/USD to remain negative. Taking a look at our daily momentum indicators, I see that the RSI moved lower and looks ready to dip below its 30 line, while the daily MACD remains below both its zero and signal lines. These signs designate bearish momentum and amplify the case for further declines in the close future.
• Support: 1.2250 (S1), 1.2130 (S2), 1.2040 (S3)
• Resistance: 1.2400 (R1), 1.2435 (R2), 1.2530 (R3)
GBP/JPY declined yesterday after finding resistance at 184.30 (R1), but the decline was halted at 181.80 (S1). However, taking into account that I see negative divergence between both our near-term momentum studies and the price action, I would stay mindful of further pullback in the close future, perhaps towards the 180.70 (S2) support line, which stands slightly above the 23.6% retracement level of the 15th of October – 6th of November up leg. As for the broader trend, I believe that the overall outlook remains positive and I would treat the recent pullback or any possible extensions of it as a corrective move before buyers prevail again. A break above the psychological zone of 185.00 (R2) is likely to confirm the case and perhaps pull the trigger for the next psychological area of 190.00 (R3).
• Support: 181.80 (S1), 180.70 (S2), 180.00 (S3)
• Resistance: 184.30 (R1), 185.00 (R2), 190.00 (R3)
NZD/USD declined on Thursday, falling below the key support (turned into resistance) line of 0.7700 (R1). I would expect such a move to set the stage for extensions towards the 0.7620 (S1) hurdle, determined by the low of the 8th of June 2012. Our momentum indicators support further declines, as the RSI lies below 50, pointing down, while the MACD stays below both its zero and signal lines. In the bigger picture, the break below the 0.7700 (R1) hurdle confirms a forthcoming lower low on the daily chart and signals the continuation of the overall down path. Moreover, the 14-day RSI moved lower after finding solid resistance at its 50 line, while the daily MACD, already negative, dipped below its trigger line. These momentum signs add to the negative overall outlook of NZD/USD.
• Support: 0.7620 (S1), 0.7500 (S2), 0.7460 (S3)
• Resistance: 0.7700 (R1), 0.7760 (R2), 0.7835 (R3)
Gold moved in a consolidative manner on Thursday, staying above the 1137 (S1) support barrier. The price structure still suggests a downtrend and consequently, I would expect another leg down and a test at the low of the 19th of April 2010, at 1125 (S2). However, the positive divergence between our short-term oscillators and the price action is still in effect, thus I would be careful of a possible upside corrective wave before the next leg down. As for the broader picture, The dip below the key zone of 1180 and the dip below 1160, which is the 61.8% retracement level of the October 2008 – September 2011 major advance, enhance my view that the yellow metal is likely to continue trending down.
• Support: 1137 (S1), 1125 (S2), 1100 (S3)
• Resistance: 1160 (R1), 1180 (R2), 1205 (R3)
WTI tumbled after testing the 79.40 (R1) line as a resistance this time. This partially confirms my view that as long as this line holds as a resistance the near-term outlook is cautiously negative. I would now expect sellers to challenge again the barrier of 76.00 (S2), where a dip could challenge the psychological zone of 75.00 (S3), defined by the lows of October 2010. On the daily chart, the price structure remains lower lows and lower highs below both the 50- and the 200- day moving averages, keeping the overall trend to the downside.
• Support: 77.00 (S1), 76.00 (S2), 75.00 (S3)
• Resistance: 79.40 (R1), 81.00 (R2), 83.50 (R3)
Benchmark Currency Rates:
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Market Summary Url:
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Market Analysis 10/11/14
Language English
Market view on US employment data likely to be revised “A solid labour market backed up the Federal Reserve’s decision to halt its QE3 round of asset purchases this month” and confirmed that the economy is expanding at a rate “that may yet force the Fed to raise interest rates as early as next spring,” opined the FT. Market News International agreed that the Fed “got another green light to raise interest rates.” So why did Fed funds rate expectations collapse 9 bps in the long end, 10-year yields plunge 10 bps, and the dollar fall against every currency we track except the beleaguered RUB? Initially, investors were unsure about whether the weaker-than-expected gain in payrolls or the unexpected drop in the unemployment rate was more significant. In the final analysis, positioning and international developments may have been more important than the outlook for US rates. In the bond market, real money investors apparently went into the report underinvested and speculative accounts were short, and after rates failed to rise, capitulation trades sent yields sharply lower. The downward pull of falling Bund and JGB yields probably influenced investors as much as the sluggish gain in average earnings as the spreads of Treasuries against those markets has widened out considerably recently. (The Treasury-Bund spread is the widest since June 1999.) The dovish repricing of the Fed funds futures remains more of a mystery to me. The fact that average earnings growth isn’t accelerating is not the same as earnings growth slowing and hence should not warrant such large downward shift in expectations, in my view. I believe this shift is likely to be reversed in coming days and the dollar resume its uptrend.
Catalonia held its straw vote on independence Sunday and an overwhelming 81% of the voters approved of independence. While the vote is non-binding – indeed, it’s illegal – it just adds one more bit of uncertainty to the EUR.
Today’s indicators: Overnight, China announced that its CPI rose 1.6% yoy in October, unchanged from September and in line with expectations. The PPI on the other hand fell 2.2% yoy, a faster rate of deflation than in September. Low inflation in China has implications for inflation worldwide, since it means lower import prices nearly everywhere. In Australia, home loans for September fall 0.7% mom, a slightly slower pace than in August but more than expected.
During the European day, the ECB is expected to announce the size of settled covered-bond purchases. In Norway, CPI inflation for October is expected to slow down somewhat, adding to the recent weak data coming out from the country. That is likely to keep NOK under selling pressure, in our view. Bank of England Gov. Mark Carney speaks in Basel, apparently in his role as chairman of the Financial Stability Board, while ECB’s Mersch speaks in Germany.
In the US, we get the new labor market conditions index for October. This is a monthly index that draws on a range of data to give a better sense of the employment conditions. It aims to produce a single measure to gauge whether the labor market is on the whole improving. In September, the index came 2.5, so a reading above that should indicate an improving labor market.
Canada’s housing starts for October are also coming out.
This week: There are no major central bank meetings this week. The Bank of England will publish its quarterly Inflation Report on Wednesday (see below), while the ECB’s Survey of Professional Forecasters comes out on Thursday.
Internationally, the week’s data will center on inflation and production. CPI data came out from China and will be released from Germany, France, Italy and several other European countries. Industrial production figures are coming out from China, Japan, and the EU.
Friday’s preliminary Q3 GDP figures for the Eurozone will be the big Eurozone indicator for the week. Many of the individual countries will also release their growth figures. Eurozone’s preliminary GDP for Q3 is expected to have moderately expanded from a stagnating Q2, while figures released from Germany, Europe’s strongest economy are likely to show that the economy expanded 0.1% qoq in Q3 from a -0.2% qoq contraction in Q2. The recent disappointing German factory orders and industrial production in September, increase the possibility for a below-expectations reading. Other EU data out this week includes the Sentix index of investor confidence.
China has a considerable number of indicators coming out this week. In addition to those already mentioned, retail sales, foreign direct investment and fixed asset investment are due out. That could cause some volatility in AUD and NZD.
Britain’s labor statistics on Wednesday are likely to be one of the main events of the week. The nation’s unemployment rate for September is expected to decline to 5.9% from 6.0 and average weekly earnings are expected to rise, indicating less slack in the labor market. In addition, the BoE inflation report will have new forecasts for growth and inflation. These should give us more insights into the recent data that suggest a slowing pace of growth.
The U.S. data calendar is comparatively light. Friday’s retail sales figure for October, will perhaps be the biggest indicator. It’s expected to show a rise in sales, which could be dollar-supportive. Thursday’s Job Opening and Labor Turnover Survey (JOLTS) is expected to show a decrease in job openings.
Currency Titles:
EUR/USD surged above 1.2400 after the US nonfarm payrolls
GBP/USD advances after finding support at 1.5785
USD/JPY declined after touching 115.50
Gold remains below the key 1180 level
WTI declines after testing the 79.40 line
Currencies Image Url:
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Currencies Text:
EUR/USD advanced on Friday, breaking above the 1.2400 level, after the US nonfarm payrolls for October fell short of expectations and disappointed the market. On Monday, EUR/USD moved further higher in early European session towards a well-tested resistance area of 1.2535 (R1). A clear break of that level is needed for further extensions. In the bigger picture, the price structure remains lower highs and lower lows below both the 50- and the 200-day moving averages. Hence, I consider the overall outlook of EUR/USD remains negative. Taking a look at our daily momentum indicators, the RSI moved higher after finding support at its 30 line and is pointing up, while the daily MACD remains below both its zero and signal lines. I also observe positive divergence between both oscillators and the price action, which favor a correction.
• Support: 1.2360 (S1), 1.2300 (S2), 1.2250 (S3).
• Resistance: 1.2535 (R1), 1.2620 (R2), 1.2745 (R3) .
GBP/USD moved higher following the below-estimate rise in US nonfarm payrolls and currently is heading towards our resistance of 1.5950 (R1). A break above that line could target our next resistance of 1.6025 (R2). However, bearing in mind our momentum signs, I would prefer to take the sidelines as far as the short-term picture is concerned. The RSI seems to find resistance at its 50-line, while the MACD, already in its negative territory, is pointing down. As for the broader trend, I maintain the view that as long as Cable is trading below the 80-day exponential moving average, the overall path remains negative. But I would prefer to see a break below 1.5785 (S1) before getting again confident on the downside. Such a dip would signal a forthcoming lower low on the daily chart and could trigger extensions towards the next support barrier of 1.5720 (S2), defined by the high of the 21st of August 2013. Moreover, I still see positive divergence between our daily oscillators and the price action. This confirms my view to wait for a move below 1. 5785 (S1) to signal the continuation of the down path.
• Support: 1.5785 (S1), 1.5720 (S2), 1.5665 (S3).
• Resistance: 1.5950 (R1), 1.6025 (R2), 1.6190 (R3).
USD/JPY declined after finding resistance at 115.50 (R1) level. During the early European hours, the pair is heading towards our 113.10 (S1) support line, which happens to be the 23.6% retracement of the 15th October- 7th November advance. A break below that level could pave the way to 112.50 (S2) support zone. On the daily chart, the rally above 110.00 (S3) confirmed a forthcoming higher peak, something that keeps the overall path of USD/JPY to the upside. Furthermore, the daily MACD rebounded from marginally below zero, turned positive, and crossed above its signal line, while the 14-day RSI moved down towards its 70 line and it seems ready to cross it. Our mixed momentum signs give me a reason to stay on the sidelines now until a better technical picture.
• Support: 113.10 (S1), 112.50 (S2), 110.00 (S3).
• Resistance: 115.50 (R1), 116.00 (R2), 117.00 (R3).
Gold moved in a consolidative manner on Monday, after breaking our resistance-turned-into-support line of 1165 (S1). The price structure still suggests a downtrend but I would prefer to stay on the sidelines since the move higher was halted just below our previous strong level of 1180. A break above that zone is needed for the precious metal to target our next resistance of 1205 (R2). Our momentum studies support this notion, as our daily RSI remains below its 50 line and is pointing down, while the daily MACD remains below its zero and trigger lines.
• Support: 1165 (S1), 1137 (S2), 1125 (S3).
• Resistance: 1180 (R1), 1205 (R2), 1225 (R3).
WTI tumbled after testing the 79.40 (R1) line as a resistance again. This partially confirms my view that as long as this line holds as a resistance, the near-term outlook is cautiously negative. I would now expect sellers to challenge again the barrier of 76.00 (S2). Breaking that could challenge the psychological zone of 75.00 (S3), defined by the lows of October 2010. On the daily chart, the price structure remains lower lows and lower highs below both the 50- and the 200- day moving averages, keeping the overall trend to the downside.
• Support: 77.00 (S1), 76.00 (S2), 75.00 (S3).
• Resistance: 79.40 (R1), 81.00 (R2), 83.50 (R3).
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Market Analysis 11/11/14
Language English
Gone too far Investors yesterday realized that they had indeed gone too far, as I thought, and reversed much of Friday’s action. The Fed funds futures, which had knocked 9 bps off of tightening expectation in the long end, regained half of that, while 10-year yields rose 6 bps, a little more than half of what they lost on Friday. Yet the stock market managed to eke out a small gain after closing unchanged on Friday, indicating that the rise in yields was due to expectations of stronger growth. Under such circumstances the dollar rallied against almost all the currencies we track, exactly the reverse of Friday’s action. (The similarity extended even to RUB, which this time was almost the only gainer vs USD after central-bank Governor Elvira Nabiullina said policy makers will temporarily limit ruble liquidity, as it is partly being used “for games on the currency markets.”).
There doesn’t seem to have been any specific trigger for the reversal, just a general sense – which I shared – that Friday’s moves were overdone in relation to the payroll data. At the same time, the dollar did move up sharply about 15 minutes before the release of the new Labor Market Conditions Index, which rose to 4.0 from 2.5, thus confirming the improvement in the labor market. Was the timing of the rally purely a coincidence? We report, you decide. In any event the index is basically a summary of previously released indices and so contains little new information. My view remains that investors should pay more attention to the FOMC’s forecasts for interest rates, which are substantially more aggressive than the market’s, and that the gradual repricing of market expectations upwards is likely to offer continued support for USD.
One possible point of concern, though: once again, it looks like there is some extreme weather headed towards the US. A “polar vortex” is forecast to descend on the US this week, with only eight of the 50 states expected to avoid the blast of arctic air. Like last year, we may once again have to mentally adjust the economic data for unseasonably cold weather. The earlier-than-usual cold could also damage crops, thereby pushing up commodity prices, and could also cause at least a temporary reversal in the oil price.
Today’s calendar On Tuesday, we have a relatively light economic calendar. Japan’s current account surplus for September unexpectedly rose sharply due to a larger-than-expected rise in income. The trade deficit also narrowed slightly. Oddly enough, the news only seemed to send USD/JPY higher. Explanations were hard to come by: the headlines read “Yen Drops as Japan Stocks Rise” and “Japanese Stocks Rebound as Yen Falls.”
We have no major indicators coming out from the Eurozone nor the UK, while the US government is closed for Veteran’s Day (although exchanges are open).
In Sweden, Riksbank releases the minutes of its October policy meeting, when it cut its key repo rate to zero. The minutes will reveal if the members discussed the possibility of using unconventional measures if prices don’t pick up. As for the indicators, we get the country’s CPI and PES unemployment rate both for October. The first is expected to show that Sweden remains in deflationary territory, while the latter is anticipated to decline somewhat. Since this is not the official unemployment rate, I believe the market will focus mainly on the CPI reading and SEK could weaken amid these releases.
The only indicator coming out from the US is the NFIB small business optimism for October, which is expected to have increased fractionally and to remain near its highest level since October 2007. This indicator is not particularly market-affecting.
During the late US session, Reserve Bank of New Zealand releases its Financial Stability report. The Bank is expected to provide more insights on its view of inflation, which recently reached the lower boundary of the Bank’s target range. Another key point will be any hint from the RBNZ Governor Graeme Wheeler over the timeframe they are expected to remain on hold. In their last meeting they gave no indication when they might start to raise rates again. If they keep this stance and attempt to talk down NZD, NZD/USD could fall back to the key support line of 0.7700.
Besides the RBNZ Governor, Boston Fed President Eric Rosengren speaks on Tuesday. Rosengren is an extreme dove, but he doesn’t vote at FOMC meetings.
Currency Titles:
EUR/USD in a consolidative mode
GBP/USD stable ahead of the inflation report
USD/JPY heading towards 115.50
Gold dips below 1165
WTI declines after testing the 79.80 line
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Currencies Text:
EUR/USD declined after touching the 50-period moving average, but it remained elevated above our 1.2360 (S1) support line. The RSI found resistance near its 50 line and is pointing down somewhat, while the MACD is already in negative territory and likely to cross below its trigger line. On the daily chart, the price structure remains lower highs and lower lows below both the 50- and the 200-day moving averages. Hence, I consider the overall outlook of EUR/USD remains negative. Looking at our daily momentum indicators, the RSI moved higher after finding support at its 30 line and is pointing up, while the daily MACD remains below both its zero and signal lines. I also observe positive divergence between both oscillators and the price action, which favor a correction. As a result, EUR/USD could rebound somewhat today, at least until hitting the first resistance at 1.2535 (R1).
• Support: 1.2360 (S1), 1.2300 (S2), 1.2250 (S3)
• Resistance: 1.2535 (R1), 1.2620 (R2), 1.2745 (R3)
GBP/USD moved sideways in a quiet Monday session, reflecting the restrained mood of investors ahead of the job and inflation reports on Wednesday. Bearing in mind our momentum signs, I maintain my wait-and-see stance as far as the short-term picture is concerned. The RSI seemed to find resistance at its 50-line and moved lower, while the MACD, already in negative territory, is pointing down. As for the broader trend, I still think that as long as Cable is trading below the 80-day exponential moving average, the overall path remains negative. Nevertheless, I would prefer to see a break below 1.5785 (S1) before getting again confident on the downside. Such a dip would signal a forthcoming lower low on the daily chart and could trigger extensions towards the next support barrier of 1.5720 (S2), defined by the high of the 21st of August 2013. Moreover, I still see positive divergence between our daily oscillators and the price action. This confirms my view to wait for a move below 1.5785 (S1) to signal the continuation of the downward path.
• Support: 1.5785 (S1), 1.5720 (S2), 1.5665 (S3)
• Resistance: 1.5950 (R1), 1.6025 (R2), 1.6190 (R3)
USD/JPY advanced after finding support at 113.80 (S1) zone and during the early European hours the pair is heading towards our 115.50 (R1) resistance level. A break above that level could pave the way to our next resistance of 116.00 (R2). On the daily chart, the rally above the psychological line of 110.00 confirmed a forthcoming higher peak, something that keeps the overall path of USD/JPY to the upside. Furthermore, the daily MACD is already above its zero and trigger line and shows no signs of topping, while the 14-day RSI moved further into its overbought territory. These are bullish momentum signs, which suggest that the rally is likely to continue.
• Support: 113.80 (S1) 113.10 (S2), 112.50 (S3)
• Resistance: 115.50 (R1), 116.00 (R2), 117.00 (R3)
Gold plunged after staying fractionally below the strong level of 1180, breaking our support-turned-into-resistance line of 1165 (R1). The price structure suggests a downtrend but I would prefer to see a break below the 1137 (S1) zone to get more confident for further extensions. In the bigger picture, our daily RSI marginally above its 30 line is pointing down, while the daily MACD remains below its zero and trigger lines, indicating that the downward momentum continues.
• Support: 1137 (S1), 1125 (S2), 1100 (S3)
• Resistance: 1165 (R1), 1180 (R2), 1205 (R3)
WTI tumbled after failing to break the 79.80 (R1) resistance line and during early European morning is heading towards our 76.00 (S1) support hurdle. A clear and decisive break of that level could challenge the psychological zone of 75.00 (S2), defined by the lows of October 2010. On the daily chart, the price structure remains lower peaks and lower troughs below both the 50- and the 200- day moving averages, keeping the overall trend to the downside.
• Support: 76.00 (S1), 75.00 (S2), 73.65 (S3)
• Resistance: 79.80 (R1), 81.00 (R2), 83.50 (R3)
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Market Analysis 12/11/14
Language English
USD/JPY moves still higher Yesterday we briefly discussed why USD/JPY was rising and pointed to the circular explanation on the wires: USD/JPY was higher because stocks were higher, and stocks were higher because USD/JPY was higher. Digging a bit deeper, it seems that both are being pushed up by talk that the government may postpone its planned increase in the consumption tax by 1½ years and call a snap election as a referendum on the tax hike. An election could cement PM Abe's grip on power, because no matter how unpopular he and his party are, the opposition parties are even weaker and more disunited. He is therefore likely to come out in a stronger position and with a pseudo-mandate to raise the consumption tax. Meanwhile, the delay in hiking the tax is perceived as positive for growth. That pushed Japanese stocks to a seven-year high, and as usual, Japanese stocks are positively correlated with USD/JPY. (Chief Cabinet Secretary Suga today denied that an early election is in the works, which took some of the steam out of USD/JPY.)
How high can USD/JPY go? The falling current account surplus and increased outflow from investors should continue to push the pair higher, in my view. Fundamental value for a currency is set by purchasing power parity. The Organization for Economic Co-Operation and Development (OECD) calculates that purchasing power parity for USD/JPY is now around ¥103.50. That means the yen is currently about 11% undervalued. Historically, this is unusual. Using the OECD’s calculations, USD/JPY was overvalued from November 1985 until August of this year, or around 29 years. It’s averaged 37% overvalued during that time on this methodology. But just because the yen has been overvalued for a long time doesn’t mean that it can’t be undervalued. Often currencies fluctuate between over- and under-valued according to economic fundamentals and market sentiment. In fact, the market usually overshoots fair value, because people tend to move together, like a herd of sheep. If the yen was 37% overvalued on average before, why couldn’t it now be 37% undervalued under these conditions? That would take USD/JPY to around ¥140. I think at least ¥130 is entirely possible.
Meanwhile, the dollar fell against most currencies Tuesday with the US market thinned out for Veteran’s Day. NZD made the biggest gains even though the Reserve Bank of New Zealand (RBNZ) financial stability report said the NZD is still above sustainable and justifiable levels and could drop further. The reason was probably that they also said interest rates may need to rise again in “coming years” as there is a risk of a resurgence in house price inflation. While I think both NZD and AUD are liable to suffer from reduced Chinese demand in coming months, I prefer NZD over AUD because a) I expect demand for agricultural commodities to be stronger than demand for industrial commodities, and b) I think the RBNZ is likely to hike rates again before the RBA starts on its hiking cycle.
Today’s indicators: During the European day, the UK will take center stage. The nation’s unemployment rate for September is expected to decline to 5.9% from 6.0%, suggesting less slack in the labor market. Average weekly earnings are anticipated to rise, adding to the positive employment report. Besides the employment data, we get the Bank of England inflation report with new forecasts for growth and inflation. These should give us more insights over the recent data that are consistent with a slowing pace of growth. Labor market data remain crucial since if wage growth remains muted then the market is likely to remain convinced that the first rate hike won’t come until after the general election in May, leaving GBP vulnerable.
Eurozone’s industrial production for September is forecast to rebound on a monthly basis. After the recent poor data, a rebound probably will not be enough to reverse the negative sentiment towards EUR, in our view.
In the US, wholesale inventories for September are expected to decelerate.
During the late US session, New Zealand’s BusinessNZ manufacturing PMI for October is to be released.
We have no speakers on Wednesday’s agenda besides the inflation report presentation by BoE Governor Marc Carney.
Currency Titles:
EUR/USD still in a consolidative mode
GBP/USD undecided ahead of inflation report
USD/JPY break above 115.50
Gold remains elevated near 1167
WTI moves sideways
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EUR/USD moved higher on Tuesday but found resistance at our black downtrend line and the 50-period moving average. During the early European morning, the pair is trading fractionally below that line. A decisive move above is necessary to trigger extensions towards our 1.2535 (R1) resistance zone. The pair is not giving any clear short-term directional impulses, as shown by our 4-hour momentum studies. The RSI is on its 50 line and moving sideways, while the MACD is above its trigger line approaching the zero level. In the bigger picture, since the price structure remains lower highs and lower lows below both the 50- and the 200-day moving averages, I maintain my view that the overall outlook of EUR/USD remains negative.
• Support: 1.2360 (S1), 1.2300 (S2), 1.2250 (S3).
• Resistance: 1.2535 (R1), 1.2620 (R2), 1.2745 (R3) .
GBP/USD traded in a consolidative range in a calm Tuesday session, reflecting the uncertainty ahead of the job and inflation reports later in the day. Bearing in mind our momentum signs, I prefer to remain neutral as far as the short-term picture is concerned. The RSI is just above its 50 line and is pointing sideways, while the MACD is above its trigger line approaching the zero level. On the daily chart, as long as the pair is trading below the 80-day exponential moving average, the overall path remains negative, in my view. However, I would prefer to see a break below 1.5785 (S1) before getting again confident on the downside. On the other hand, strong employment figures and encouraging inflation report could push Cable above its 1.5950 (R1) resistance hurdle.
• Support: 1.5785 (S1), 1.5720 (S2), 1.5665 (S3).
• Resistance: 1.5950 (R1), 1.6025 (R2), 1.6190 (R3).
USD/JPY surged on Tuesday, breaking above our 115.50 prior resistance level, but the move was halted at our next obstacle of 116.00 (R1). However, taking into account the negative divergence between both of our near-term momentum studies and the price action, I would stay mindful of a possible pullback in the immediate future, perhaps towards the 114.70 (S1) support line, which stands slightly above the 23.6% retracement level of the 29th of October – 11th of November up leg. As for the broader trend, I believe that the overall outlook remains positive and I would treat any possible pullback as a corrective move before buyers prevail again. Furthermore, the daily MACD is already above its zero and trigger line and shows no signs of topping, while the 14-day RSI remains in its overbought territory. These are bullish momentum signs, which suggest that the rally is likely to continue.
• Support: 114.70 (S1), 113.80 (S2) 113.10 (S3).
• Resistance: 116.00 (R1), 117.00 (R2), 118.00 (R3).
Gold advanced on Tuesday to test our resistance line of 1167 (R1), where it remained elevated during the early European morning Wednesday. Given our momentum studies I would prefer to take to the sidelines again, as far as the short-term picture is concerned. The RSI is marginally above its 50 line and is pointing sideways, while the MACD is above its trigger line and seems willing to cross its zero line. In the bigger picture, the price structure still suggests a downtrend but I would prefer to see a break below the 1137 (S1) zone to get more confident for further extensions.
• Support: 1137 (S1), 1125 (S2), 1100 (S3) .
• Resistance: 1167 (R1), 1180 (R2), 1205 (R3).
WTI traded sideways between the 76.00 (S1) support area and the resistance of 79.80 (R1). Since the oil price seems to be oscillating between these two lines, I would prefer remain flat. A clear and decisive break of 76.00 (S1) is necessary for further declines, perhaps towards the psychological zone of 75.00 (S2), defined by the lows of October 2010. On the other hand, a break above 79.80 (R1) could trigger further extensions towards 81.00 (R2). On the daily chart, the price structure remains lower peaks and lower troughs below both the 50- and the 200- day moving averages, keeping the overall trend to the downside.
• Support: 76.00 (S1), 75.00 (S2), 73.65 (S3) .
• Resistance: 79.80 (R1), 81.00 (R2), 83.50 (R3).
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Market Analysis 13/11/14
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Dollar picture bright on both fundamentals and technicals The dollar was mixed in early European trading Thursday. It retained the gains vs GBP that it made following the dovish Bank of England inflation report yesterday, while falling against the commodity currencies, particularly NZD, boosted by a further rise in the manufacturing PMI.
Stepping back from the day-to-day movements, we shouldn’t forget what ECB President Draghi has said: that divergence in monetary policy will be the driving force for currency markets. Let’s look at the overall picture from that respect. The Fed recently ended its quantitative easing and is debating the timing of its first rate hike. By contrast, the Bank of Japan recently increased its “quantitative and qualitative easing” and moreover pledged to continue it indefinitely if necessary. The Bank of England yesterday downgraded its growth and inflation forecasts, causing the market (and us) to push out their forecasts for when the first rate hike would come. And the ECB is just getting its quantitative easing under way. The IMF yesterday warned of downside risks to its growth projections for the euro zone. As the economic picture in Europe deteriorates, even the perennially hawkish Bundesbank President Jens Weidmann seems to be getting on board: in an interview yesterday he made some distinctly dovish comments, such as “the expansionary monetary policy is fundamentally appropriate” and “it is understandable that the ECB's governing council has discussed additional measures…” While he continues to reject the purchase of sovereign bonds, his change in tone over the last few weeks is noticeable: he now views ECB policy as appropriate, whereas just a few months ago he voted against the ABS purchase program; he endorses the increase in the ECB’s balance sheet; and he thinks it’s appropriate to discuss even more measures. This shows a big change in view by the ECB Council’s most hawkish member. Thus the US monetary outlook is almost unique within the G10 (NZD is the only exception) and should support USD going forward, in my view.
The good fundamentals for the dollar are matched by good technical as well. The US currency recently managed a major technical achievement: last week the DXY index broke above the 30-year downward trendline taken from the highs of March 1985. Technical analysts are waiting to see whether it can close above that trendline this week, somewhere over 87.0 (this morning’s level: 87.81). If so, that could signal the start of a long-term uptrend in the US currency. A move above the psychological zone of 90.00 could reaffirm the break out and perhaps trigger extensions towards the next resistance of 93.00, which happens to coincide with the 23.6% retracement level of the March 1985 – November move. A move above 93.00 would make us truly confident that the major-term downtrend has come to an end. The oscillators signal accelerating bullish momentum: the 14-week RSI, already within its overbought field, found support at its 70 line and bounced back up, while the weekly MACD stands above both its zero and signal lines, pointing up. In my view these oscillators increase the likelihood of the index continuing higher. Hence both the fundamentals and technical are lined up for a stronger dollar.
The only thing that worries me is positioning. The recent Commitment of Traders report showed that speculative long positions in USD have reached a record high, with positioning in several currencies, including EUR, at or near the most net short that they’ve been in the last five years. This may slow the US currency’s rise but shouldn’t prevent it.
Today’s indicators: During the Asian day, China announced that retail sales came in line with expectations while industrial production was a bit below. The news had little impact on AUD, which in any event fell suddenly after RBA Assistant Gov. Kent said the currency is too high relative to fundamentals and the RBA hasn’t ruled out FX intervention. In Japan, machinery orders for September rose on a mom basis instead of falling as expected, but that caused only a momentary dip in USD/JPY. I calculate from looking at various purchasing power parity calculations for USD/JPY that ¥130 is achievable over the medium term.
During the European and US days there is only secondary data out. German final CPI for October will be released; as usual, the forecast is the same as the initial estimate. French CPI for the same month is also coming out.
In the US, the Job Opening and Labor Turnover Survey (JOLTS) report for September is forecast to show the number of job openings decreasing marginally. Initial jobless claims for the week ended Nov. 8 are also due out.
On the other hand, there are a considerable number of central bankers speaking who will probably be the center of the market’s attention. Fed Chair Janet Yellen gives the welcoming remarks at a Fed/ECB event. New York Fed President William Dudley, Philadelphia Fed President Charles Plosser and Minneapolis Fed President Narayana Kocherlakota speak at separate events. Dudley and Kocherlakota are extreme doves, while Plosser is an extreme hawk and they are all voting members, which gives some significance to their speeches. ECB Executive Board member Benoit Coeure also speaks.
Currency Titles:
EUR/USD in a symmetrical triangle
GBP/USD plunged after the inflation report
USD/JPY in a consolidative mode
Gold remains elevated near 1167
WTI still moves sideways
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EUR/USD remains capped below our black downtrend line and the 50-period moving average. There were a couple of attempts to break the near-term trend line, but none of them found much support and the pair has now formed a symmetrical triangle reflecting investors’ indecisiveness. The Eurozone’s preliminary Q3 GDP figures to be released on Friday could trigger the breakout and set the direction of the pair. Usually the symmetrical triangles are thought of as a continuation pattern. Given the negative outlook of EUR/USD in the bigger picture, this put more chances of a downward breakout, in my view.
• Support: 1.2360 (S1), 1.2300 (S2), 1.2250 (S3).
• Resistance: 1.2535 (R1), 1.2620 (R2), 1.2745 (R3) .
GBP/USD plunged following the inflation report, breaking our support-turned-into-resistance 1.5785 (R1) line. A dip below that hurdle signaled a forthcoming lower low on the daily chart and could trigger extensions towards the next support barrier of 1.5720 (S1), defined by the high of the 21st of August 2013. Our momentum signs support this notion: the RSI moved towards its 30 line and is pointing down, while the MACD, already in its negative territory, crossed below its trigger line. In the bigger picture, I maintain my view that as long as the pair is trading below the 80-day exponential moving average, the overall path remains negative.
• Support: 1.5720 (S1), 1.5665 (S2), 1.5620 (S3) .
• Resistance: 1.5785 (R1), 1.5840 (R2), 1.5950 (R3).
USD/JPY moved sideways on Wednesday, staying below the 116.00 (R1) resistance line. I still see negative divergence between both of our near-term momentum studies and the price action, thus I would stay mindful of a possible pullback in the immediate future, before the bulls prevail again. The pullback could occur at least towards the 114.70 (S1) support line, which stands slightly above the 23.6% retracement level of the 29th of October – 11th of November advance. As for the broader trend, I believe that the overall outlook remains positive and I would treat any possible pullback as a corrective move before buyers prevail again. Furthermore, the daily MACD is already above its zero and trigger line and shows no signs of topping, while the 14-day RSI remains in its overbought territory. These are bullish momentum signs that suggest the rally is likely to continue.
• Support: 114.70 (S1), 113.80 (S2) 113.10 (S3).
• Resistance: 116.00 (R1), 117.00 (R2), 118.00 (R3).
Gold made another attempt on Wednesday to breach our resistance line of 1167 (R1), but once again it proved unsuccessful. During the early European hours, the precious metal is heading for another test of that barrier. As long as this resistance persists, I would prefer to stay on the sidelines at least for the near-term. The RSI is marginally above its 50 line and is pointing up, while the MACD poked its nose above its zero and signal line keeping alive the scenario for another test of the 1167 (R1) hurdle. On the daily chart, the price structure still suggests a downtrend but I will retain my view that a break below the 1137 (S1) zone is needed to get more confident for further extensions.
• Support: 1137 (S1), 1125 (S2), 1100 (S3) .
• Resistance: 1167 (R1), 1180 (R2), 1205 (R3).
WTI traded sideways between the 76.00 (S1) support area and the resistance of 79.80 (R1). Since the oil price seems to be oscillating between these two lines, I would prefer remain neutral. A clear and decisive break of 76.00 (S1) is necessary for further declines, perhaps towards the psychological zone of 75.00 (S2), defined by the lows of October 2010. On the other hand, a break above 79.80 (R1) could trigger further extensions towards 81.00 (R2). On the daily chart, the price structure remains lower highs and lower lows below both the 50- and the 200- day moving averages, keeping the overall trend to the downside.
• Support: 76.00 (S1), 75.00 (S2), 73.65 (S3) .
• Resistance: 79.80 (R1), 81.00 (R2), 83.50 (R3).
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Market Analysis 14/11/14
Language English
Oil prices plunge A fairly quiet day in the financial markets but a huge day for oil. With little news to move the market, ten-year US yields were down 3 bps, stocks closed virtually unchanged for the third day in a row, and the dollar was generally higher.
The biggest action was in the oil market, where prices plunged further. Iraq and Kurdistan reached a deal on oil exports that could add as much as 400k b/d to oil supply next year. Iran’s negotiations with the US over the former’s nuclear projects continue, holding open the possibility that Iranian supplies will be available to the West if an agreement is reached. Meanwhile, OPEC is resisting calls to cut production at its Nov. 27th meeting and instead is cutting export prices to the US, where there is already a glut of oil, in an apparent effort to force high-cost US shale producers out of the market. The decline in oil prices is likely to have a beneficial effect on global economies: Wal-Mart Stores, for example, announced a rise in same-store sales in Q3 for the first time seven quarters, with declining gasoline prices cited as one of the causes. On the other hand, lower oil prices are causing a headache for central banks as inflation falls around the world. Poland’s CPI was -0.6% yoy in October, the lowest since 1982, while the Bank of Italy warned that a prolonged period of price stagnation would damage its hopes of lowering its huge public debt, now the second highest in Europe after Greece at 132% of GDP.
The collapse of oil prices is bad news for the commodity producing countries and indeed CAD was the second-worst performing G10 currency after GBP, which is still suffering the after-effects of Wednesday’s inflation report. Energy exports, largely to the US, account for 24% of Canada’s total exports and so US energy prices are crucial for Canada’s terms of trade. On the other hand, NOK was stable vs USD yesterday. Over the last 10 years, the currency pairs most sensitive to oil prices have been USD/NOK, USD/CAD, AUD/USD, AUD/JPY and USD/BRL. Looking at a shorter time frame (the last two years), USD/RUB tops the list and USD/MXN is fairly high in the list as well.
The US Job Opening and Labor Turnover Survey (JOLTS) report showed job openings down more than expected in September at 4.735mn, off from 4.835mn in August. However, the market’s focus here is on the “quit rate,” that is, the rate at which US workers quit their jobs. This is a great indication of confidence in the job market, because in today’s world, few people are going to quit their jobs unless they are confident they can get another one soon. The quit rate rose to 2.0% from 1.8%, so it is now back to around levels comparable to before the financial crisis. This is an encouraging bit of news for the US labor market. Nonetheless, long-dated US Fed funds rate expectations were down 3.5 bps.
Today’s indicators: During the European day, preliminary GDP data for Q3 are coming out from France, Germany and the Eurozone as a whole. Eurozone’s preliminary GDP for Q3 is expected to have expanded a mere 0.1% qoq from a stagnating Q2. The recent disappointing German factory orders and industrial production in September increase the possibility for a below-consensus reading. EUR/USD has been trading in a tight range in the last couple of days ahead of the GDP figures. A weak number could be the catalyst to push the pair below 1.2400 again, in my view.
Separately, Eurozone’s final CPI for October is expected to remain unchanged from its flash estimate of 0.4% yoy.
From the UK, construction output for September is forecast to rise, a turnaround from August.
In Canada, we get manufacturing sales for September.
In the US, retail sales for October is forecast to rise 0.2% mom, a turnaround from -0.3% mom in September. Similarly, retail sales excluding the volatile items of autos and gasoline are expected to have risen, a rebound from the previous month. After last month’s unexpected drop, a rebound could strengthen USD. The preliminary University of Michigan consumer confidence sentiment for November is also coming out.
As for Friday’s speakers, the talkative ECB Executive Board member Benoit Coeure speaks again, as well as St. Louis Fed President James Bullard and Fed Vice Chairman Stanley Fischer.
Currency Titles:
EUR/USD still in a symmetrical triangle
GBP/USD tumbled on Thursday
USD/JPY in a consolidative mode
Gold steady near 1167
WTI plunged on Thursday
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EUR/USD remains capped below the 50-period moving average and within the symmetrical triangle formation. There were a couple of attempts to break the near-term trend line, but none of them found much support. The directionless movement of the pair reflect investors’ concerns ahead of today’s Eurozone’s GDP figures. The recent data suggest that growth in the bloc is slowing, which could trigger the breakout and set the direction of the pair. Usually symmetrical triangles are thought of as a continuation pattern and a break in either direction is likely to determine the near-term bias. Given the sluggish growth outlook for the bloc, this put more chances of a downward breakout, in my view.
• Support: 1.2360 (S1), 1.2300 (S2), 1.2250 (S3).
• Resistance: 1.2535 (R1), 1.2620 (R2), 1.2745 (R3).
GBP/USD tumbled on Thursday, breaking below our support (turned into resistance) line of 1.5720 (R1). The dip below the 1.5785 (R2) signaled a forthcoming lower low on the daily chart and supported the case for further declines. During the early European hours the pair is heading towards our support of 1.5665 (S1), where a break will likely have larger bearish implication and would target 1.5620 (S2) support line. Our momentum signs support this notion: the RSI moved further into its oversold territory and is pointing down, while the MACD, already in its negative territory, shows no sign of bottoming. These oscillators suggest accelerating bearish momentum. In the bigger picture, I maintain my view that as long as the pair is trading below the 80-day exponential moving average, the overall path remains negative.
• Support: 1.5665 (S1), 1.5620 (S2), 1.5550 (S3) .
• Resistance: 1.5720 (R1), 1.5785 (R2), 1.5840 (R3).
USD/JPY consolidated on Thursday, staying below the 116.00 (R1) resistance line. I still see negative divergence between both of our near-term momentum studies and the price action, thus I would stay mindful of a possible pullback in the short term. The pullback could occur at least towards the 114.70 (S1) support line, which stands slightly above the 23.6% retracement level of the 29th of October – 11th of November advance. As for the broader trend, I believe that the overall outlook remains positive and I would treat any possible pullback as a corrective move before buyers prevail again. Furthermore, the daily MACD is already above its zero and trigger line and shows no signs of topping, while the 14-day RSI remains in its overbought territory. These are bullish momentum signs that suggest the rally is likely to continue.
• Support: 114.70 (S1), 113.80 (S2) 113.10 (S3).
• Resistance: 116.00 (R1), 117.00 (R2), 118.00 (R3).
Gold resumed its attempts on Thursday to break our resistance line of 1167 (R1), but once again the bulls were not strong enough to push the price above that obstacle. During the early European hours, the precious metal is heading for another test of that barrier. As long as this resistance persists, I would prefer to stay on the sidelines at least for the near-term. On the daily chart, the price structure still suggests a downtrend but I will retain my view that a break below the 1137 (S1) zone is needed to get more confident for further extensions.
• Support: 1137 (S1), 1125 (S2), 1100 (S3) .
• Resistance: 1167 (R1), 1180 (R2), 1205 (R3).
WTI plunged on Thursday, breaking two support lines in a row. The move was halted just above the 73.65 (S1) support line. A clear and decisive break of that line could trigger further extensions towards the 71.50 (S2) support level, which is defined by the low of 31st of August 2010. Looking at our momentum studies, the RSI entered its oversold field and is pointing somewhat down, while the MACD, already below its zero level, crossed its signal line and moved down. These are bearish momentum signs that suggest further declines are likely to occur. On the daily chart, the price structure remains lower highs and lower lows below both the 50- and the 200- day moving averages, keeping the overall trend to the downside.
• Support: 73.65 (S1), 71.50 (S2), 70.00 (S3) .
• Resistance: 76.00 (R1), 78.90 (R2), 81.00 (R3).
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Market Analysis 17/11/14
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Dollar lower on lower US rates: US retail sales surprised on the upside and US bond yields began to rise, pulling the dollar up along with it. The figure added to market expectations of a strong Q3 GDP figure for the US, in contrast to the anemic Q3 growth figure published for Europe on Friday. (Market consensus for Q3 US GDP is currently 3.2%. The figure will be released on Nov. 25th.) But the impact of the report faded quite quickly. As 10-year yields approached 2.40 (peak = 2.375%), a resistance point recently, the market reversed, because investors can no longer imagine a high inflation rate. Then later in the US day gold started to rise sharply as a poll out of Switzerland showed the “yes” vote getting more support than expected. This hit USD and the dollar began to plunge. EUR/USD traded between 1.2399-1.2546 in four hours or 1.2%, compared to a 1.8% range for the whole month of November up to that point. While all of this was going on in the FX and bond market, equities remained dull; once again the S & P 500 closed almost unchanged.
The 10-year bond finished the US day at 2.32% and this morning in early European trading is quoted at 2.28%, which may explain in part why the dollar is lower against all its G10 counterparts. On the other hand, rate expectations as shown by the Fed funds futures barely budged, so there has not been a major rethink about the short-term course of Fed policy, just the longer-term equilibrium level of interest rates as the outlook for inflation changes.
The G20 meeting had nothing to say about FX rates.The leaders agreed to plans drawn up by their finance ministers in February, known as the Brisbane Action Plan, to boost their collective GDP growth by at least 2% by 2018. They will do this by increasing “investment, trade and competition.” They said that “the global economy is being held back by a shortfall in demand.” In that case, fiscal policy should be the solution. On that subject they said “(w)e will continue to implement fiscal strategies flexibly, taking into account near-term economic conditions, while putting debt as a share of GDP on a sustainable path.” Something for everyone: the French can point to “flexibly,” while the Germans can point to “sustainable path.” At the end of the day, everyone can do whatever they want. Perhaps the most significant statement was that “(w)e will monitor and hold each other to account for implementing our commitments,” which means there will be plenty of opportunity for finger-pointing in coming months. The fact is, raising global growth has been an aim of the G20 all year and in prior years as well, but growth is still anemic, particularly in Europe. When was the last time you heard a politician stand up and say “we have to do X, Y and Z to meet our G20 commitments?” I can’t remember.
Today’s indicators: Speaking of anemic growth, Japan’s Q3 GDP came in at -1.6% qoq SAAR, a big disappointment (market expectation: +2.2%) after the -7.1% qoq SAAR plunge in Q2 following the hike in the consumption tax. This makes it more likely that PM Abe will call a snap election as a referendum on increasing the consumption tax again and will use his re-election as an excuse to delay it. He will reportedly hold a press conference tomorrow to make the announcement. The implications for JPY are negative: a delay should be good for the stock market, which means a higher USD/JPY (weaker yen), and it also means less economy-wide savings, hence a smaller current account surplus.
During the European day, Eurozone’s trade balance for September and Norway’s trade balance for October are coming out. In Sweden, the official unemployment rate for October is forecast to increase a bit, in line with the recent increase in the PES unemployment rate for the same month.
From the US, industrial production for October is expected to rise mom but at a slower pace than in September. The Empire State manufacturing PMI for November is expected to improve.
We have four ECB speakers on Monday’s agenda: Executive Board member Yves Mersch, Executive Board member Peter Praet and the very, very talkative Executive Board member Benoit Coeure. In addition, ECB President Mario Draghi gives his quarterly testimony to the Committee on Economic and Monetary Affairs (ECON) of the European Parliament in Brussels. At the press conference following the latest ECB meeting, Draghi made it clear that the ECB is open to embarking on new measures if needed, so we do not expect any surprises at this event.
Rest of the week: The highlight will be the Fed minutes from its October FOMC policy meeting on Wednesday. The minutes will provide details of the decision to end the QE3 and the improvement in the labor market. Any reference to when the members expect to start raising rates could be USD-bullish.
On Tuesday, we get UK’s CPI for October and the forecast is for the inflation rate to remain unchanged. From Germany we get the ZEW survey for November. On Wednesday, besides the Fed minutes, the Bank of England publishes the minutes of its November policy meeting. As for the indicators, the US housing starts and building permits for October are forecast to increase, suggesting an improved housing sector activity. Wednesday the Bank of Japan holds its policy meeting, but following the surprise increase in its market operations at the end of October, it will probably be some time before there is another change in policy.
Thursday is global PMI day. During the Asian time, we have China’s preliminary HSBC manufacturing PMI for November and during the European day, Eurozone’s preliminary PMIs also for November are released just after the figures from Germany and France are announced. Later in the day, we get the US preliminary Markit manufacturing PMI for November. US CPI for October is forecast to ease somewhat.
Finally on Friday, Canada’s CPI for October is expected to remain unchanged in pace from September. This could prove CAD-supportive.
Currency Titles:
EUR/USD rebounds from 1.2400
GBP/USD finds support near 1.5600
EUR/JPY declines after hitting 146.50
Gold surges above the key line of 1180
WTI challenges the 76.00 area as a resistance this time
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EUR/USD rebounded from the 1.2400 (S2) line on Friday and today, during the Asian morning, it emerged above the resistance (turned into support) of 1.2530 (S1). Nevertheless, the advance was halted by our resistance hurdle of 1.2575 (R1), defined by the high of the 4th of November. Even though our near-term oscillators support the case for further upside, I would expect any extensions of Friday’s recovery to remain limited near the 200-period moving average and the 1.2620 (R2) line, which is the 50% retracement level of the 15th of October – 7th November down wave. The RSI moved above its 50 line and is pointing up, while the MACD crossed above both its zero and signal lines. As for the broader trend, the price structure on the daily chart still suggest a downtrend, but I can spot positive divergence between both of our daily momentum studies and the price action, something that reveals decelerating bearish momentum. Hence, I would prefer to stay flat for now and wait for more actionable signs to convince me that the downtrend is back in force and will most probably continue.
• Support: 1.2530 (S1), 1.2400 (S2), 1.2360 (S3)
• Resistance: 1.2575 (R1), 1.2620 (R2), 1.2750 (R3)
GBP/USD hit the support line of 1.5600 (S1) on Friday and rebounded. Today, during the Asian morning the rebound was stopped slightly above the 1.5730 (R1) resistance barrier, which happens to lie fractionally close to the 61.8% retracement level of the July 2013 – July 2014 uptrend. However, I see signs that the short-term recovery may continue a bit more, perhaps towards the support-turned-into-resistance line of 1.5800 (R2). On the 4-hour chart, the RSI exited its oversold territory, edged higher, and is now heading towards its 50 line, while the MACD, although negative, appears willing to move above its trigger. On the daily chart I see a possible hammer candle. As for the broader trend, I maintain the view that as long as Cable is trading below the 80-day exponential moving average, the overall path remains to the downside and I would treat any possible extensions of the current rebound as a corrective move before sellers pull the trigger again. A clear break below the 1.5600 (S1) support will probably trigger downside extensions towards the psychological bar of 1.5500 (S2).
• Support: 1.5600 (S1), 1.5500 (S2), 1.5430 (S3)
• Resistance: 1.5730 (R1), 1.5800 (R2), 1.5950 (R3)
EUR/JPY tumbled after finding resistance at 146.50 (R1) and during the early European morning appears ready to challenge the 145.00 (S1) line as a support this time. In my view, the rate is most likely to move below that line and perhaps target the 143.40 (S2) barrier, which stands slightly below the 23.6% retracement level of the 16th of October – 17th of November rally. Our short-term oscillators support the notion. The RSI exited its overbought field and is pointing down, while the MACD has topped and could move below its signal line any time soon. However, the overall outlook of this pair remains positive in my view and I would see the present pullback or any possible extensions of it as a downside corrective wave before the bulls take the reins again.
• Support: 145.00 (S1), 143.40 (S2), 142.00 (S3)
• Resistance: 146.50 (R1), 147.00 (R2), 148.00 (R3)
Gold shot up, breaking back above the key area of 1180 (S1), but found resistance at 1195 (R1), pretty close to the 50% retracement level of the 21st October – 7th of November down wave. The move above 1180 (S1) confirms a higher high on the 4-hour chart and alongside our momentum signs amplifies the case for further upside. On the daily chart, the 14-day RSI moved higher and looks ready to challenge its 50 line, while the MACD crossed above its trigger and is pointing up. A clear move above 1195 (R1) is likely to target the next resistance at 1205 (R2), which lies slightly below the 61.8% retracement level of the aforementioned decline. However, regarding the broader trend, I still see a longer-term downtrend. Hence, on the absence of any major bullish trend reversal signal, I would prefer to adopt a “wait and see” stance as far as the overall outlook of the yellow metal is concerned.
• Support: 1180 (S1), 1146 (S2), 1132 (S3)
• Resistance: 1195 (R1), 1205 (R2), 1222 (R3)
WTI found some buy orders near the 73.35 (S1) line and rebounded to test the 76.00 area as a resistance this time. On the daily chart the price structure remains lower peaks and lower troughs below both the 50- and the 200-day moving averages, thus I still see a negative overall outlook. I would expect the recent rebound or any possible short-term extensions of it to provide renewed selling opportunities. A clear and decisive dip below the 73.35 (S1) obstacle would signal a forthcoming lower low and perhaps see scope for extensions towards our next support at 71.00 (S2), defined by the lows of July and August 2010.
• Support: 73.35 (S1), 71.00 (S2), 70.00 (S3)
• Resistance: 76.00 (R1), 78.00 (R2), 80.00 (R3)
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Market Analysis 18/11/14
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Policy divergence intensifies The dollar recovered generally against most of its G10 counterparts on Monday after falling precipitously on Friday. Much of the movement seems to have been mean reversion. For example, NZD and AUD were the best performing currencies on Friday, but they were the worst performing currencies during the European day yesterday.
FX seems to be in the spotlight nowadays. The wild movements in our market – EUR/USD traded in a 1.1% range yesterday while USD/JPY had a 1.4% range – are in sharp contrast to the US stock market, which once again closed with less than 0.1% change on the day. The bond market is somewhere in between: 10-year yields yesterday rose from 2.28% to a high of 2.35% as the Empire State manufacturing survey rose (although was below expectations).
The rise in US yields was somewhat puzzling in light of a San Francisco Fed paper released yesterday that argued “the risk of high inflation in the next one to two years remains very low by historical standards.” The risks “remain tilted to the downside,” it said, adding that “monetary policy is not contributing to the risk of inflation being above the median projection in the near future.” This is an important contribution to the policy debate as it gives academic backing to those who want to delay a rate hike. The Fed funds futures clearly reflected the paper’s conclusion: implied interest rates on the near Fed funds contracts (the next one to two years) fell 2 bps, but implied rates on the far contracts rose by 2 bps.
Given the (slightly) reduced outlook for near-term tightening in the US, the dollar’s strength may be more a result of “process of elimination” investing than anything else. With Japan slipping back into recession, there’s little if any chance of that country cutting back its quantitative easing program any time soon. Meanwhile, two ECB officials yesterday showed the Bank’s strong resolve to do “whatever it takes” to get the Eurozone economy moving again. ECB Executive Board member Yves Mersch , a noted policy hawk, gave a speech devoted to asset purchases. He said the central bank could theoretically extend purchases to gold, shares, or exchange traded funds (ETFs) or other assets if more action is needed, although he focused on the prospects for buying sovereign bonds. This speech was significant as it was the first time one of the ECB hawks has given such a detailed discussion of the possibilities for QE. Then ECB President Mario Draghi said the central bank is ready for further stimulus if its current efforts are not sufficient to accelerate the region’s recovery. Not only could they increase asset purchases, but they could also alter the size of the targeted long-term refinancing operations if necessary to meet their balance sheet target. Also he linked the “new measures” being investigated to asset purchases, again implying a larger balance sheet. Net net, it’s clear that the ECB is rapidly losing its aversion to extraordinary measures just as the US is embarking on a normalization of policy. The divergence in monetary policy between the US and other countries, notably Japan and the Eurozone, is likely to be a driver of the FX market for a considerable length of time, in my view.
Today’s schedule: The Reserve Bank of Australia released the minutes from its November policy meeting. They were slightly more dovish, with a little less optimism about the growth outlook. There was no change in their comments about the AUD however and the currency was largely unaffected.
During the European day, the highlights will be the UK CPI for October and the German ZEW survey for November. The UK CPI rate is expected to have remained unchanged at +1.2% yoy. That could push further back the expectations for BoE tightening and could leave sterling under selling pressure. In Germany, the ZEW current situation index is expected to have declined, but the expectations index is estimated to have turned positive. The low levels of the indices will confirm once again that Eurozone’s growth engine is still facing problems, although the improvement in the expectations index could be EUR-positive.
In the US, both the headline and the core (excluding food and energy) PPI rates are forecast to have declined in October, corroborating the San Francisco Fed’s view on inflation. That could be negative for USD. The NAHB housing market index for November is forecast increase by one unit.
We have four speakers on Tuesday’s agenda: Reserve Bank of Australia Governor Glenn Stevens, ECB governing council member Klaas Knot, Minneapolis Fed President Narayana Kocherlakota and BoE MPC member Kristin Forbes.
Currency Titles:
EUR/USD tumbles after Draghi’s comments
GBP/JPY within a short-term range
AUD/USD within a short-term upside channel
Gold moves in a consolidative manner
WTI stays below 76.00
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Currencies Text:
EUR/USD tumbled on Monday after the ECB President said that the Bank is ready to provide additional stimulus if needed and that such new measures could include purchases of sovereign bonds. The pair declined after finding resistance at 1.2575 (R1), a level marked by the high of the 4th of November, but the fall was stopped 40 pips above our support line of 1.2400 (S1). In the bigger picture, the price structure on the daily chart still suggests a downtrend, but there is still positive divergence between both of our daily momentum studies and the price action, which indicates decelerating negative momentum. Thus I would prefer to stay flat for now and wait for more actionable signs to convince me that the downtrend is back in force and likely to continue.
• Support: 1.2400 (S1), 1.2360 (S2), 1.2250 (S3)
• Resistance: 1.2575 (R1), 1.2620 (R2), 1.2750 (R3)
GBP/JPY moved higher on Monday after finding support at 181.00 (S1), the lower bound of the sideways path it’s been trading in since the beginning of the month. Although the rate remains above the black uptrend line (drawn from back at the low of the 15th of October) and above both the 50- and the 200-period moving averages, bearing in mind that the pair has been oscillating between 181.00 (S1) and 184.30 (R1) I would prefer to adopt a “wait and see” approach for now. Moreover, I can spot negative divergence between both our short-term momentum studies and the price action, which supports my choice to remain neutral for now. I would prefer to see a clear move above the key zone of 185.00 (R2) before getting confident again on the upside. On the other hand, a break below the psychological area of 180.00 (S2) is the move that could flip the short-term bias to the downside and perhaps trigger extensions towards 178.00 (S3), which happens to lie fractionally close to the 38.2% retracement level of the 15th October – 6th November rally.
• Support: 181.00 (S1), 180.00 (S2), 178.00 (S3)
• Resistance: 184.30 (R1), 185.00 (R2), 188.00 (R3)
AUD/USD slid yesterday, but the decline was stopped by the lower bound of the blue short-term upside channel. The fact that the rate remains within the channel shows that the short-term path of the pair, at least for now, is to the upside. Nonetheless, taking a close look at our momentum studies, I would trust this path only if a clear move above 0.8800 (R1) occurs. Such a break is likely to see scope for extensions towards our next resistance obstacle at 0.8900 (R2). On the daily chart, since the rate remains below both the 50- and 200- day moving averages, I still see a longer-term downtrend and I believe that the recovery from 0.8540 (S2) still has a corrective structure for the time being.
• Support: 0.8640 (S1), 0.8540 (S2), 0.8500 (S3)
• Resistance: 0.8800 (R1), 0.8900 (R2), 0.9000 (R3)
Gold moved in a consolidative mode on Monday, staying between the support of 1180 (S1) and the 1195 (R1) resistance, which is marginally above the 50% retracement level of the 21st October – 7th of November down wave. I will repeat that Friday’s move above1180 (S1) confirms a higher high on the 4-hour chart. This fact, alongside our momentum signals, makes me believe that we may experience further upside in the near future. On the daily chart, the 14-day RSI remains near its 50 line, while the daily MACD stands above its trigger and is pointing north. A clear move above 1195 (R1) is likely to target the next resistance at 1205 (R2), which lies slightly below the 61.8% retracement level of the aforementioned decline. However, regarding the broader trend, I still see a longer-term downtrend. Hence, on the absence of any major bullish trend reversal signal, I would prefer to adopt a “wait and see” stance as far as the overall outlook of the yellow metal is concerned.
• Support: 1180 (S1), 1146 (S2), 1132 (S3)
• Resistance: 1195 (R1), 1205 (R2), 1222 (R3)
WTI moved quietly yesterday, staying slightly below the 76.00 (R1) resistance line. On the daily chart the price structure remains lower peaks and lower troughs below both the 50- and the 200-day moving averages, thus I still see a negative overall bias. Consequently, I would expect Friday’s rebound or any possible short-term extensions of it to provide renewed selling opportunities. A clear and decisive dip below the 73.35 (S1) obstacle would signal a forthcoming lower low and perhaps see scope for extensions towards our next support at 71.00 (S2), defined by the lows of July and August 2010.
• Support: 73.35 (S1), 71.00 (S2), 70.00 (S3)
• Resistance: 76.00 (R1), 78.00 (R2), 80.00 (R3)
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Market Analysis 19/11/14
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BoJ members show more agreementThe Bank of Japan ended its two-day policy meeting and kept its massive stimulus program intact as was widely expected. Board member Takahide Kiuchi was the only dissenter of the current quantitative easing program in an 8-1 vote. This shows more agreement than on Oct. 31st, when the vote to increase the stimulus was divided into a 4-5 split. On Tuesday, Prime Minister Shinzo Abe announced that he was delaying the next hike in the consumption tax (initially scheduled for October 2015) and called a snap election as a referendum on the tax, likely in mid-December. Following the country’s GDP contraction on Monday, the various forthcoming data if weak, would likely keep the JPY under selling pressure.
The New Zealand dollar weakened the most against the dollar, after dairy product prices fell in the latest auction to the lowest level in more than five years. This pushed the NZD 1M volatility up approximately 4% to the levels seen in the beginning of 2014.
Today’s events: The focus will most likely be on the minutes from the latest Bank of England policy meeting. After the inflation report, where the Bank downgraded its growth and inflation forecasts and said that the inflation rate is likely to fall below 1% within 6 months, it will be interesting to see if Weale and McCafferty continued supporting a 25bps rate hike.
Besides the BoE meeting minutes, we get the minutes of the Oct.28-29 FOMC meeting. Here we will get more details on the decision to end the QE3 program and the view of the Fed members of an improving labor market. I believe that the market will also look for clues on when the Committee is considering to start raising rates. On the other hand, in their previous minutes, the Fed mentioned that a stronger dollar and a slower global growth are risks to the US economy. Since the release of September 16-17 FOMC meeting minutes, the DXY index has appreciated approximately 3% and the global growth showed signs of further weakness (Japan’s GDP: -0.4% qoq, Germany’s GDP: just 0.1% qoq and Eurozone’s 0.2% qoq, all for Q3). The risk that the Fed could reiterate its concern given these developments, could put a downward pressure on the USD.
As for the indicators, from Europe we get only Eurozone’s current account balance for September. In the US, both housing starts and building permits for October are expected to have increased indicating that the housing sector is growing again after a soft summer. The strong figures support the strength in the broader economy. Near the US closing, we have New Zealand’s PPI for Q3 coming out. However, no forecast is available.
We have four speakers scheduled during the day: ECB executive Board member Peter Praet, BoE MPC member Nemat Shafik, Norges Bank Governor Oeystein Olsen and Riksbank Deputy Governor Martin Floden.
Currency Titles:
EUR/USD gains after the German ZEW survey
USD/JPY breaks above 117.00
GBP/USD testing the 1.5600 line
Gold finds resistance near 1205
WTI lower after testing again the 76.00 zone
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Currencies Text:
EUR/USD started rising well before the German ZEW survey for November was out and got another boost after the release. However, the advance was stopped 30 pips below our resistance of 1.2575 (R1). As long as the rate remains within the blue upside channel, I would maintain my flat stance and treat the recovery from 1.2360 (S3) as a corrective move. In the bigger picture, the price structure on the daily chart still suggests a downtrend, but there is still positive divergence between both of our daily momentum studies and the price action, which indicates decelerating negative momentum. The positive divergence give me extra reasons to sit on the sidelines and wait for more actionable signs to convince me that the downtrend is back in force and likely to continue.
• Support: 1.2440 (S1), 1.2400 (S2), 1.2360 (S3)
• Resistance: 1.2575 (R1), 1.2620 (R2), 1.2750 (R3)
USD/JPY firmed up on Tuesday, breaking above the resistance (turned into support) barrier of 117.00 (S1). I would now expect the rate to challenge the 118.00 (R1) hurdle, defined by the high of the 15th of October 2007. A break above that barrier could see scope for extensions towards the highs of August 2007, near the psychological zone of 120.00 (R2). Shifting our attention to our near-term oscillators, I see that the RSI is pointing up and could challenge its 70 line in the very close future, while the MACD, already positive, stands above its trigger line. This designates bullish momentum and support further advances. As for the broader trend, after the upside exit of a triangle formation on the 29th of July, the price structure has been higher peaks and higher troughs above both the 50- and the 200-day moving averages, keeping the overall path of this pair to the upside.
• Support: 117.00 (S1), 116.00 (S2), 115.00 (S3)
• Resistance: 118.00 (R1), 120.00 (R2), 122.50 (R3)
GBP/USD slid on Tuesday and during the European morning Wednesday, it is testing the 1.5600 (S1) support line. A dip below that line is likely to open the way for the psychological barrier of 1.5500 (S2). The RSI moved lower and looks ready to enter its oversold field, while the MACD, already negative, could cross below its trigger any time soon. These momentum signs designate bearish momentum and support the case for further declines in the near future. As for the broader trend, I will repeat for an umpteenth time that as long as Cable is trading below the 80-day exponential moving average, the overall path remains to the downside in my view.
• Support: 1.5600 (S1), 1.5500 (S2), 1.5430 (S3)
• Resistance: 1.5730 (R1), 1.5800 (R2), 1.5950 (R3)
Gold emerged above 1195 and the 50% retracement level of the 21st October – 7th of November down wave. Subsequently, the yellow metal found resistance a few cents below our 1205 hurdle and pulled back. Taking a look at our short-term momentum studies, I see that the RSI moved lower after exiting its overbought territory, while the MACD has topped and appears willing to cross below its trigger line. These signals amplify the case that the pullback may continue, perhaps for a test near the 1180 (S1) zone. Although the minor pullback may provide more buying opportunities and trigger another short-term leg up, regarding the broader trend, I still see a longer-term downtrend. Hence, on the absence of any major bullish trend reversal signal, I would prefer to adopt a “wait and see” stance as far as the overall outlook of the precious metal is concerned.
• Support: 1180 (S1), 1146 (S2), 1132 (S3)
• Resistance: 1205 (R1), 1222 (R2), 1235 (R3)
WTI tumbled yesterday after finding resistance once again near the 76.00 (R1) line. This confirms a lower high and keeps the near-term bias of WTI to the downside. A clear move below the support obstacle of 73.35 (S1) would confirm a forthcoming lower low and perhaps set the stage for extensions towards our next support at 71.00 (S2), defined by the lows of July and August 2010. Our near-term oscillators maintain a negative tone as well. The RSI moved lower after finding resistance marginally above its 50 line, while the MACD, already negative, dipped below its trigger line. In the bigger picture, the price structure on the daily chart remains lower peaks and lower troughs below both the 50- and the 200-day moving averages, keeping the overall picture negative.
• Support: 73.35 (S1), 71.00 (S2), 70.00 (S3)
• Resistance: 76.00 (R1), 78.00 (R2), 80.00 (R3)
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