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IronFX Daily Commentary 02/02/2015
Language English
US employers see no rush to lift wages The falling US unemployment rate isn’t putting much pressure on US companies to raise compensation. The employment cost index (ECI), a broad measure of wage and benefit expenditures rose 0.6% qoq in Q4, at a slower pace from 0.7% qoq in Q3 and in line with expectations. This left the annual rate unchanged at 2.2%, way below the average compensation gains of about 3.5% for the 2001-2007 period. In addition, the 1st estimate of the US GDP showed that the economy slowed in Q4, missing expectations and falling from its fastest pace in eleven years in Q3. Growth was dragged down by weaker business spending, a drop in federal government spending and net exports. Nevertheless, consumer spending rose to its highest rate since before the financial crisis, boosted mainly by cheaper oil. Rising consumer confidence could drive the growth rate higher in 2015, but the recent bad weather could again take some of the shine of that underlying strength. Moreover, the 1st estimate of the core PCE showed a slowdown as well. Overall, there is little in these data that could force the Fed to change its view on interest rates, but the softer-than-forecast expansion rate could push rate hike expectations back a bit.
Overnight, China’s HSBC final manufacturing PMI fell to 49.7, marginally below its 49.8 preliminary reading and below consensus of an unchanged reading. The data came just a day after the official PMI for January also dipped into contractionary territory, for the first time since September 2012. This is likely to put pressure on the People’s Bank of China for further easing. In a surprise move in November, the Bank cut its official interest rate for the first time in more than two years to support growth. This time, we could see a combination of a rate cut and reserve requirement ratio (RRR) cut to put more liquidity into the economy. Such a move is likely to be AUD- and NZD-positive.
Today’s highlights: In Europe, we get the manufacturing PMI figures for January from several European countries, including the UK, and the final figure for the Eurozone as a whole. 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 slightly increase to 52.8 from 52.5.
From Canada, the RBC Manufacturing PMI for January is expected. The market doesn’t pay that much attention to it and prefers the Ivey manufacturing PMI, which will be released on Wednesday, thus no forecast is available.
In the US, the final Markit manufacturing PMI and the ISM manufacturing index both for January are also to be released. The personal income and personal spending for December are also due out. Personal income is expected to rise at a slower pace from November, while personal spending is anticipated to fall from the previous month. The nation’s yoy rate of the PCE deflator and core PCE are forecast to decelerate a bit, in line with the 1st estimate of Q4 core PCE in Friday’s GDP figures.
As for the rest of the week, while Friday’s US employment report will be the focus, as usual, there are a number of important data points preceding it. On Tuesday, the Reserve Bank of Australia holds its policy meeting. The recent shift in policy from the Reserve Bank of New Zealand and the decline in Australia’s Q4 CPI rate below the target range put pressure on RBA to ease its policy as well. The pressure for a 25bps rate cut is building, but we believe the Bank is more likely to simply shift to an easing bias instead. Even though investors could be disappointed by no rate cut, which seems to be a popular idea recently, the switch to an easing bias and a hint of a rate cut at a future meeting could prove enough to weaken the currency further, regardless.
On Wednesday, the final service-sector PMIs for the countries we got the manufacturing figures on Monday are coming out. In the US, we have the ADP employment report as usual two days ahead of the NFP release. The ADP report is expected to show that the number of jobs gained in January decreased from December.
On Thursday, the Bank of England meets to decide on its policy rate. There’s little chance of a change in rates, especially after the two policy makers who had been voting for a rate increase dropped their call at the last meeting in the face of falling inflation. Hence, the impact on the market should be minimal, as usual. The minutes of the meeting however, should make interesting reading when they are released on 18th of February, as they may reveal how the Bank will act if the inflation turns negative eventually.
Finally on Friday, the major event will be the US non-farm payrolls for January. The market consensus is for an increase in payrolls of 231k, down from 252k in December. Despite the expectation of a slowdown in January payrolls, it still will show that the US economy has added at least 200k jobs for 12 consecutive months. At the same time the unemployment rate is forecast to remain unchanged at 5.6%, while average hourly earnings are expected to accelerate a bit on a yoy basis. Such figures would be consistent with the FOMC’s more confident view about the employment market. In the statement following last week’s meeting, the Committee referred to “strong job gains” and a “solid pace” of growth, thereby another strong reading should support the dollar.
Canada’s unemployment rate for January is also coming out.
Currency Titles:
EUR/USD trades in a consolidative manner
GBP/JPY oscillates in a sideways range
NZD/USD pauses near 0.7215
Gold triggers buy orders near 1255
WTI finds buyers near 43.50
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Currencies Text:
EUR/USD moved in a consolidative manner on Friday, staying between the support of 1.1260 (S1) and the resistance barrier of 1.1370 (R1). In my view, since the rate remains below the black downtrend line, the short-term path remains to the downside. Nevertheless, taking a look at our daily oscillators, I would stay mindful that an upside corrective move may be looming. The 14-day RSI just poked its nose above its 30 line, while the daily MACD has bottomed and looks able to move above its trigger any time soon. I would prefer to wait for a move below 1.1260 (S1) in order to get more confident that the bears are back in control. Such a move is likely to pave the way for another test near the support zone of 1.1100 (S2), determined by the low of the 26th of January. On the daily chart, the price structure still suggests a longer-term downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages.
• Support: 1.1260 (S1), 1.1100 (S2), 1.1025 (S3)
• Resistance: 1.1370 (R1), 1.1460 (R2), 1.1540 (R3)
GBP/JPY slid below the support turned into resistance of 177.70 (R1) to hit again support near the 176.00 (S1) strong hurdle. As long as the rate is trading between that key support line and the near-term black downside resistance line, I would consider the near-term bias to be neutral and I would prefer to adopt a “wait and see” stance for now. On the daily chart, the picture stays cautiously negative. However, I see that the 176.00 (S1) area lies near the 200-day moving average, coincides with the 61.8% retracement level of the 15th of October – 5th of December rally and also stands near the 161.8% extension level of the width of a failure swing top completed on the 6th of January. These technical signs make the 176.00 (S1) support area even stronger in my view. I also see positive divergence between both the daily oscillators and the price action, something that supports my view to stay on the sidelines and wait for more actionable directional signals.
• Support: 176.00 (S1), 175.00 (S2), 173.90 (S3)
• Resistance: 177.70 (R1), 179.50 (R2), 180.30 (R3)
NZD/USD declined on Friday, but hit support at 0.7215 (S1) and rebounded somewhat. The rate is trading below the black downtrend line and below both the 50- and the 200-period moving averages, printing a negative short-term picture. Nonetheless, taking a look at our short-term oscillators, I would be cautious that the recent rebound may continue for a while. The RSI moved above its 30 line, while the MACD bottomed and crossed above its signal. I believe that a break below 0.7215 (S1) is the move that would have larger bearish implications. Such a move is likely to pull the trigger for the support zone of 0.7120 (S2), defined by the lows of the 16th and 17th of March 2011. On the daily chart, the break below 0.7625, the lower bound of the sideways range containing the price action from the beginning of December until the 21st of January, signaled the continuation of the longer-term downtrend and turned the overall outlook of the pair back to negative.
• Support: 0.7215 (S1), 0.7120 (S2), 0.7000 (S3)
• Resistance: 0.7300 (R1), 0.7400 (R2), 0.7500 (R3)
Gold shot up on Friday after finding buyers near the support barrier of 1255 (S2), which coincides with the 38.2% retracement level of the 2nd – 22nd January advance. The precious metal edged above the 1275 (S1) obstacle and as a result I would expect a test near the 1295 (R1) area. Our near-term momentum indicators support the notion as they both breached their black downside resistance lines. As for the overall path, after the completion of an inverted head and shoulders formation on the 12th of January, the price structure has been suggesting an uptrend. A clear and decisive close above the 1305 (R2) area would confirm a forthcoming higher high on the daily chart and perhaps challenge the resistance of 1320 (R3), marked by the high of 14th of August.
• Support: 1275 (S1), 1255 (S2), 1238 (S3)
• Resistance: 1295 (R1), 1305 (R2), 1320 (R3)
WTI surged on Friday, to move above the psychological figure of 45.00 (S2). The rally was stopped at 48.30 (R1) and subsequently the rate retreated. As long as WTI is trading above the black uptrend line, the short-term outlook remains positive in my view. However, our near-term momentum studies suggest that further pullback may be in the works, perhaps towards the black uptrend line. The RSI exited its overbought territory and is pointing down, while the MACD has topped and could move below its trigger any time soon. In the bigger picture, WTI is still printing lower lows and lower highs below both the 50- and the 200-day moving averages, and this keeps the overall downtrend intact. However, the short-term uptrend and the positive divergence between the daily oscillators and the price action make me believe that the upside corrective move is not over yet.
• Support: 46.50 (S1), 45.00 (S2), 43.50 (S3)
• Resistance: 48.30 (R1) 49.00 (R2), 50.00 (R3)
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IronFX Daily Commentary 03/02/2015
Language English
RBA joined its global counterparts in easing policy The Reserve Bank of Australia cut its benchmark interest rate by 25 bps to 2.25%, and joined its global counterparts in easing policy. Several central banks have loosened their monetary policy in recent weeks, from Denmark to India and now Australia, to stave off deflationary pressures on the back of low oil prices. In the statement following the decision, Governor Glenn Stevens said that that output growth will probably remain below average for somewhat longer, and the rate of unemployment could peak a little higher, than earlier expected. The economy is likely to be operating with a degree of spare capacity for some time yet. Therefore, a further reduction in the interest rate was appropriate to boost growth and prices.
The central bank remained concerned about the housing market and in the statement it said that “The Bank is working with other regulators to assess and contain economic risks that may arise from the housing market.” The Bank will most likely increase the macroprudential tools to offset the level of house loans and take the heat out of the housing market. Therefore, with interest rates now at record lows the impact on housing prices will be watched closely. AUD/USD dropped sharply on the announcement of a rate cut, to its lowest level since May 2009. The fall was halted around 0.7650 support line, but given the absence of price pressures in the economy, the low oil and commodity prices, and the possibility of another rate cut at a future meeting, AUD/USD is likely to remain under selling pressure and we could see further declines at least until 0.7500 in the near future.
Oil prices rose after news that drillers pulled 94 rigs from US fields last week and a refinery strike, the biggest since 1980, could tighten gasoline supply. US benchmark West Texas Intermediate gained approximately 10% since Friday’s news on the drop in oil rigs to a three-year low, while Brent rose 6%. We believe that fundamentally, nothing has changed dramatically and there are no signs of sustainable reduced global output. The recent rise in oil prices could be seen as bear market correction.
Today’s highlights: During the European day, the only noteworthy indicator we get is the UK construction PMI for January.
In the US, factory orders for December are expected to fall at an accelerating pace.
In New Zealand, the Q4 unemployment rate is anticipated to decline somewhat, while the participation rate is expected to increase and average hourly earnings are forecast to decal erate. Last week, the RBNZ remained on hold but went from a tightening bias to a neutral bias and even held out the possibility that the next move in rates would be a cut. This together with the decline of the inflation rate below the lower boundary of the Bank’s range target of 1%-3% over the medium term, kept Kiwi under increased selling pressure. The positive labor market data however and the fact that the pair is trading near a strong support level could push NZD/USD up before the bears prevail again.
We have two Fed speakers on Tuesday’s agenda: St. Louis Fed President James Bullard and Minneapolis Fed President Narayana Kocherlakota speak.
Currency Titles:
EUR/USD continues sideways
EUR/JPY oscillates in a sideways range
AUD/USD breaks below 0.7700 after the RBA cut rates
Gold hits resistance at 1285
WTI continues its rally
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Currencies Text:
EUR/USD continued trading in a consolidative mode on Monday, staying between the support of 1.1260 (S1) and the resistance barrier of 1.1370 (R1). The rate remains below the black downtrend line, and this keeps the short-term down path intact. However, bearing in mind the momentum sings derived by our daily oscillators, I would stay careful that an upside corrective move may be in the works. The 14-day RSI stayed above its 30 line, while the daily MACD, has bottomed and moved above its trigger line. I would prefer to wait for a move below 1.1260 (S1) in order to get more confident that the bears are back in control. Such a move is likely to pave the way for another test near the support zone of 1.1100 (S2), determined by the low of the 26th of January. On the daily chart, the price structure still suggests a longer-term downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages.
• Support: 1.1260 (S1), 1.1100 (S2), 1.1025 (S3)
• Resistance: 1.1370 (R1), 1.1460 (R2), 1.1540 (R3)
EUR/JPY continued oscillating between the support line of 132.30 (S1) and the key resistance barrier of 134.15 (R1). The RSI hit again resistance at its 50 line and turned down, and the MACD, slightly below zero, appears ready to dip below its trigger line. Having these momentum signs in mind, I would expect the forthcoming wave to be to the downside. A move below the 132.30 (S1) line would confirm my view and set the stage for extensions towards the psychological number of 130.00 (S2). On the daily chart, we can see that the price structure still suggests a medium-term downtrend. Some concerns I have, derive from the daily oscillators. I see positive divergence between the 14-day RSI and the price action, while the daily MACD has bottomed is now testing its trigger line.
• Support: 132.30 (S1), 130.00 (S2), 129.30 (S3)
• Resistance: 134.15 (R1), 135.75 (R2), 137.65 (R3)
AUD/USD plunged during the Asian morning Tuesday, breaking below the support (turned into resistance) barrier of 0.7700 (R1), defined by the low of the 13th of July 2009. The pair fell sharply after the Reserve Bank of Australia decided to cut its benchmark interest rate to a new record-low of 2.25%. Moreover, Governor Stevens noted that “A lower exchange rate is likely to be needed to achieve balanced growth in the economy”. Having these fundamental factors into account and that the pair is trading within a short-term downside channel, I would expect the dip below 0.7700 (R1) to set the stage for extensions towards the psychological figure of 0.7500 (S1). As far as the bigger picture is concerned, the break below the 0.8000 (R3) psychological hurdle is the move that triggered the continuation of the longer-term downtrend in my view.
• Support: 0.7500 (S1), 0.7450 (S2), 0.7330 (S3)
• Resistance: 0.7700 (R1), 0.7870 (R2), 0.8000 (R3)
Gold slid somewhat on Monday after finding resistance near the 1285 (R1) level. Taking into account that the precious metal remains below the downside resistance line taken from the high of the 22nd of January, I would switch my stance to neutral for now. Our short-term oscillators support my choice. The RSI lies near its 50 line, while the MACD stands slightly below its zero level, pointing sideways. As for the overall path, after the completion of an inverted head and shoulders formation on the 12th of January, on the daily chart, the price structure has been suggesting an uptrend. A clear and decisive close above the 1305 (R3) area in the not-too-distant future would confirm a forthcoming higher high and perhaps challenge the resistance of 1320, marked by the 14th of August.
• Support: 1255 (S1), 1238 (S2), 1222 (S3)
• Resistance: 1285 (R1), 1295 (R2), 1305 (R3)
WTI continued to race higher yesterday to hit resistance slightly above the psychological figure of 50.00. As long as WTI is trading within the upside channel and above the black uptrend line taken from the low of the 29th of January, the short-term picture remains positive in my view. However, our near-term momentum studies suggest that we may experience a pullback before the next leg up. The MACD has topped and fell below its trigger, while there is negative divergence between the RSI and the price action. In the bigger picture, WTI is still printing lower lows and lower highs below both the 50- and the 200-day moving averages, and this keeps the overall downtrend intact. But, the short-term uptrend and the positive divergence between the daily oscillators and the price action make me believe that the upside corrective move is not over yet.
• Support: 48.00 (S1), 46.50 (S2), 45.00 (S3)
• Resistance: 50.45 (R1) 51.70 (R2), 54.00 (R3)
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IronFX Daily Commentary 04/02/2015
Language English
RBNZ’s Wheeler says stable OCR most prudent option Reserve Bank of New Zealand Governor Graeme Wheeler reiterated his view that “in the current circumstances we expect to keep the official cash rate (OCR) on hold for some time, and that future interest rate adjustments, either up or down, will depend on the emerging flow of economic data.” The comment that a period of OCR stability is the most prudent option, strengthened NZD/USD somewhat. Even though he sounded less dovish than the market expected, he repeated that the New Zealand dollar remains unjustified in terms of current economic conditions. However, what was more important in my view, is that he did not rule out a cut in the interest rates if domestic demand deteriorated and domestic price pressures declined further. Therefore, the level of inflation rate should be closely watched for indication of a possible rate cut.
China’s HSBC service-sector PMI for January declined to its lowest level since July. Following the decline in the HSBC manufacturing PMI for the same month earlier this week, the decline in service-sector PMI raised expectations for additional stimulus by the country’s central bank, to prevent economic slowdown in 2015. Although AUD and NZD didn’t react much at the release, they strengthened afterwards in the anticipation of more aggressive measures by the PBoC.
Oil prices keep rising since Friday, after US drillers’ idled 94 rigs. This increased speculation that reduced investment in the sector, given the current low price level, will reduce crude production.
US factory orders fell 3.4% mom in December, at an accelerating pace from -1.7% mom in November, and far below expectations. This was the fifth straight month of drops and suggested that US growth has cooled a bit in Q4, in line with the flash GDP figures released last week. Overall, there is little in these data that could force the Fed to change its view on interest rates, but the softer-than-forecast growth rate could push rate hike expectations back a bit.
The European Central Bank will hold a non-monetary policy meeting to decide whether it should approve a move by Greece’s central bank to provide emergency liquidity to some of the country’s largest banks. Such loans, which are short-term, are provided only as a last resort. Given the huge uncertainty developed following the SYRIZA election, capital outflows drained the liquidity from the Greek banks and increased the default risks of those institutions.
As for today’s indicators: During the European day, we get the final service-sector PMIs for January from the countries we got the manufacturing data for on Monday. As usual, the final forecasts from France, Germany and Eurozone are the same as the initial estimates, while the UK service-sector PMI is expected to have increased slightly. The revisions in the final manufacturing PMIs on Monday, increase the possibilities that we could see revisions in the service-sector PMIs as well. Eurozone’s retail sales for December are also coming out and they are expected to have remained unchanged from the previous month.
In the US, the most important indicator we get is the ADP employment report for January two days ahead of the NFP release. The ADP report is expected to show that the private sector gained fewer jobs in January than it did in the previous month. The final Markit service-sector PMI and the ISM non-manufacturing index, both for January, are also to be released.
As for the speakers, Cleveland Fed President Loretta Mester speaks during the US session.
Currency Titles:
EUR/USD breaks the near-term downtrend line
USD/JPY continues sideways
Gold hits support at 1255
WTI climbs higher
EUR/GBP in a corrective mode
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Currencies Text:
EUR/USD raced higher on Tuesday, breaking above the near-term black downtrend line and above the resistance (turned into support) hurdle of 1.1370 (S1). Yesterday’s rally confirmed my worries that an upside corrective move could be in the works. Switching to the daily chart, we see that the price structure still suggests a longer-term downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. Nevertheless, our daily oscillators support the continuation of the upside retracement. The 14-day RSI edged higher after exiting its oversold territory, while the daily MACD has bottomed and moved above its trigger line. A break above the 1.1540 (R1) line is likely to extend the correction perhaps towards the next resistance obstacle, at 1.1650 (R2).
• Support: 1.1370 (S1), 1.1260 (S2), 1.1100 (S3)
• Resistance: 1.1540 (R1), 1.1650 (R2), 1.1730 (R3)
USD/JPY edged higher after finding support near 116.85 (S2), fractionally below the lower boundary of the sideways range it’s been trading since the 19th of January. Bearing in mind that the rate is still in a sideways mode, I would maintain my flat stance as far as the near-term picture is concerned. Our oscillators gyrate around their neutral levels, corroborating my view. On the daily chart, the rate is still trading above both the 50- and the 200-day moving averages, but it’s been also trading within a possible triangle formation. As a result, I would wait for an escape out of the pattern before making any assumptions about the continuation or end of the longer-term uptrend.
• Support: 117.15 (S1), 116.85 (S2), 116.00 (S3)
• Resistance: 118.50 (R1), 118.85 (R2), 119.35 (R3)
Gold tumbled on Tuesday after hitting resistance again at 1285 (R1). Nevertheless the fall was halted by the 1255 (S1) support barrier, which happens to be the 38.2% retracement level of the 2nd – 22nd of January advance. Having in mind that the precious metal stayed below the downside resistance line taken from the high of the 22nd of January, but failed to move below 1255 (S1) and print a lower low, I would like to maintain my neutral stance. As for the overall path, after the completion of an inverted head and shoulders formation on the 12th of January, on the daily chart, the price structure has been suggesting an uptrend. The possibility for a higher low still exist and thus I would treat the current down wave as a corrective phase.
• Support: 1255 (S1), 1238 (S2), 1222 (S3)
• Resistance: 1285 (R1), 1295 (R2), 1305 (R3)
WTI continued its rally on Tuesday to hit resistance marginally above the 54.00 (R1) resistance line. Subsequently it pulled back to test the 51.50 (S1) barrier as support this time. As long as WTI is trading within the upside channel and above the black uptrend line taken from the low of the 29th of January, the short-term picture remains positive in my view. I would expect the forthcoming wave to be to the upside and challenge again the 54.00 (R1) zone. A move above 54.00 (R1), is likely to test the psychological figure of 55.00 (R2). On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Nevertheless, the short-term uptrend and the positive divergence between the daily oscillators and the price action make me believe that the upside corrective phase is not over yet.
• Support: 51.50 (S1), 50.45 (S2), 48.00 (S3)
• Resistance: 54.00 (R1) 55.00 (R2), 56.50 (R3)
EUR/GBP moved somewhat higher yesterday to hit resistance near the 0.7600 (R1) line. Taking a look at our short-term oscillators I see chances that the pair could trade higher. The RSI lies above its upside support line, while the MACD stands above both its zero and signal lines. A price move above 0.7600 (R1) is likely to confirm these momentum signs and perhaps see scope for extensions towards the next resistance, at 0.7700 (R2). Nevertheless, in the bigger picture, the downside exit of the triangle pattern on the 18th of December signaled the continuation of the longer-term downtrend, thus the overall outlook stays negative in my view. In the absence of any major bullish trend reversal signals, I would treat the recent rebound or any extensions of it as an upside corrective phase for now.
• Support: 0.7530 (S1), 0.7440 (S2), 0.7400 (S3)
• Resistance: 0.7600 (R1), 0.7700 (R2), 0.7750 (R3)
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IronFX Daily Commentary 05/02/2015
Language English
Are we in an “unspoken” currency war? The People’s Bank of China (PBoC) cut its reserve requirement ratio (RRR) by 50 bps to 19.5%. This will lower the amount of deposits that each bank hold as reserves and add new liquidity into the banking system. The move came after the central bank cut its benchmark interest rate in November, in an attempt to keep the Chinese economy stable. Australia and New Zealand, whose economies are heavily dependent on exports to China, saw their currencies jump on the news but gave back all the gains in the following hour.
Many central banks in their attempt to fight low inflation, which has been intensified by the plunge in oil prices, have taken unprecedented stimulus measures and eased their policies to spur growth. But with interest rates near zero for many countries –or even negative in many cases- and with binding fiscal constraints, it seems that the only tool left to stimulate growth is a weaker exchange rate. A weak currency is likely to boost the countries engaging in currency devaluation, as it will make their exports cheaper and will support growth in their economy. But if everyone is playing the same game and everyone devalues its currency, then who wins? The only “sure” thing is more and higher FX volatility and higher cross-border transactions, whether it is trade in goods or capital flows.
The European Central Bank toughened its stance with Greece’s new government by restricting financing to its direct liquidity lines. In a statement following the meeting they decided to lift the waiver on using Greek debt as collateral. The decision was based on the fact that it is currently not possible to assume a successful conclusion of the program review. The Greek banks can still access funding through the Emergency Liquidity Assistance (ELA), but at a much higher cost to the banks. According to a Greek newswire, the interest rate is 1.55% compared with 0.05% on regular ECB financing. The Greek finance minister will meet his German counterpart during the day, to win support to tackle Greece massive debt burden, even though Germans remain opposed to such plans.
On Wednesday, the US ADP report estimated that the private sector created 213k jobs in January, down from 253k in the previous month, missing expectations of 223k. With just one day ahead of the US employment report, the ADP report suggested that Friday’s non-farm payroll figure may come in over 200k again, consistent with a firming labor market (although there is a lot of variation between the ADP and the NFP reports). In the meantime, the US ISM non-manufacturing PMI moved further into its expansionary territory a touch below it’s almost 9 year peak in June. The strong figure added to the dollar’s gains which recovered some of its previous days loses.
In Canada, the Ivey PMI fell again below the 50 threshold which separates expansion from contraction. The index fell to 45.4 in January from 55.4 in December, missing market expectations of 54.0. USD/CAD surged above the 1.2500 figure ahead of the release and gained another 50 pips as soon as the number was out. Given the recent rate cut by the Bank of Canada, and the slowdown in the headline CPI, I believe that it won’t take us long before seeing USD/CAD challenging again the resistance hurdle of 1.2800, as soon as the oil rally ends.
Today’s highlights: In the UK, the Bank of England meets to decide on its policy rate. There’s little chance of a change in rates, especially after the two policy makers who had been voting for a rate increase dropped their call at the last meeting in the face of falling inflation. As a result, the impact on the market should be minimal, as usual. The minutes of the meeting however, should make interesting reading when they are released on 18th of February, as they may reveal how the Bank plans to act if the inflation turns negative eventually.
From Sweden, industrial production for December are expected to rebound from the previous month. This could prove SEK-supportive.
In the US, initial jobless claims for the week ended Jan.31 and trade balance for December are coming out.
We have several speakers on Thursday’s agenda: ECB Governing Council member Jens Weidmann, Boston Fed President Eric Rosengren and ECB Executive Board member Peter Praet speak. ECB Governing Council member Klaas Knot will speak in Dutch Parliament on ECB’s quantitative easing program.
Currency Titles:
EUR/USD tumbles to hit support at the uptrend line
GBP/JPY stuck in a range
Is AUD/USD ready to correct higher?
Gold rebounds from 1255
WTI collapses
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EUR/USD declined on Wednesday to hit support at the near-term black downtrend line. The rate remains above that line, something that keeps alive the scenario for a rebound and another test near the 1.1540 (R1) resistance area. On the other hand, our short-term momentum studies provide signs of weakness. The RSI broke below its upside support line and dipped below its 50 barrier, while the MACD has topped and moved below its trigger line. Personally, I would prefer to see a break below 1.1260 (S1) in order to adopt the negative view. Such a move is likely to prompt bearish extensions towards the support of 1.1100 (S2), defined by the low of the 26th of January. Having these mixed signs in mind, I would prefer to take the sidelines at the moment as far as the short-term picture is concerned, and wait for more actionable directional signals. Switching to the daily chart, we see that the price structure still suggests a longer-term downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages.
• Support: 1.1260 (S1), 1.1100 (S2), 1.1020 (S3).
• Resistance: 1.1540 (R1), 1.1650 (R2), 1.1730 (R3).
GBP/JPY rebounded from near the 176.00 (S2) key support obstacle, moved above the resistance (turned into support) of 177.70 (S1), and hit resistance between the near-term black downside resistance line and the resistance of 179.50 (R1). Bearing that in mind, I would consider the near-term bias to be neutral and I would prefer to adopt a “wait and see” stance for now. Zooming out to the daily chart, I see that the 176.00 (S2) area lies near the 200-day moving average, coincides with the 61.8% retracement level of the 15th of October – 5th of December rally and also stands near the 161.8% extension level of the width of the failure swing top completed on the 6th of January. These technical signs make the 176.00 (S2) support area even stronger in my view. I also see positive divergence between both the daily oscillators and the price action, something that supports my view to stay on the sidelines and wait for more actionable directional signals.
• Support: 177.70 (S1), 176.00 (S2), 175.00 (S3).
• Resistance: 179.50 (R1), 180.25 (R2), 181.50 (R3).
AUD/USD rebounded from 0.7615 (S2) to hit resistance near the upper boundary of the short-term downside channel. Given that there is positive divergence between both of our short-term momentum indicators and the price action, I would be careful that the rebound may continue above the aforementioned boundary. As far as the bigger picture is concerned, the break below the 0.8000 (R2) psychological hurdle is the move that triggered the continuation of the longer-term downtrend in my view. Therefore, I would treat any possible upside extensions as a corrective move before sellers seize control again. I still expect the rate to challenge the psychological line of 0.7500 (S3) in the not-to-distant future.
• Support: 0.7730 (S1), 0.7615 (S2), 0.7500 (S3).
• Resistance: 0.7870 (R1), 0.8000 (R2), 0.8035 (R3).
Gold rebounded after triggering some buy orders near the 1255 (S1) support barrier, which happens to be the 38.2% retracement level of the 2nd – 22nd of January. Nevertheless, the metal is still trading below the downside resistance line taken from the high of the 22nd of January, thus I would prefer to keep my flat stance. As for the overall path, after the completion of an inverted head and shoulders formation on the 12th of January, on the daily chart, the price structure has been suggesting an uptrend. The possibility for a higher low still exist and thus I would treat the current down wave as a corrective phase.
• Support: 1255 (S1), 1238 (S2), 1222 (S3).
• Resistance: 1285 (R1), 1295 (R2), 1305 (R3).
WTI plunged yesterday, breaking below the lower bound of the steep black upside channel. The collapse was halted by the black uptrend line taken from the low of the 29th of January, but I see signs that the bears are willing to drive the battle below it. A clear violation of the 48.00 (S1) support hurdle will confirm that and perhaps lead the rate towards the 46.50 (S2) area. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages, and this keeps the overall downtrend intact. However, given that the positive divergence between the daily oscillators and the price action is still in effect, I would prefer to stand aside and wait for more actionable signals that bears are willing to extend the down path.
• Support: 48.00 (S1), 46.50 (S2), 45.00 (S3).
• Resistance: 49.00 (R1) 50.45 (R2), 51.50 (R3).
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IronFX Daily Commentary 06/02/15
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Greek and German finance ministers “didn’t even agree to disagree” The long-awaited meeting between German finance minister Schäuble and Greek finance minister Varoufakis turned out more or less as expected. Schauble reiterated Germany’s “tough love” position that Greece needs to continue its reforms to improve its competitiveness and should continue to work with troika as per prior agreements. Debt cut for Greece was not even on the table. The meeting following ECB's decision on Wednesday to stop accepting Greek bonds to finance Greek banks, puts pressure on the new-elected government to come up with an agreement and continue to work with troika to avoid a possible “Grexit”.
The Reserve Bank of Australia (RBA) released its quarterly statement of monetary policy, which includes updated economic growth and inflation forecasts. The statement, which was less dovish than expected, showed that the Bank revised down its outlook for inflation and growth rate for the first half of 2015. The Australian dollar gained however, as they kept the annual outlook for inflation within the Bank’s target range of 2%-3% and they expect the annual growth rate to pick up later this year. RBA cut its benchmark interest rate by 25 bps earlier this week, and given their assessment in this quarterly statement the reduction was appropriate to support demand and sustain growth and inflation outcomes consistent with their target. AUD/USD has recovered all of its losses following Tuesday’s rate cut, and given the optimistic statement it could extend its gains towards the key psychological level of 0.8000 in the near future.
The highlight of the day will be the US non-farm payrolls for January. The market consensus is for an increase in payrolls of 230k, down from 252k in December. The strong ADP report on Wednesday, suggested that nonfarm payroll figure may come in over 200k again, consistent with a firming labor market (although there is a lot of variation between the ADP and the NFP reports). In such a case, it will show that the US economy has added at least 200k jobs for 12 consecutive months. At the same time the unemployment rate is forecast to remain unchanged at 5.6%, while average hourly earnings are expected to accelerate a bit on a yoy basis. Such figures would be consistent with the FOMC’s more confident view about the employment market. In the statement following last week’s meeting, the Committee referred to “strong job gains” and a “solid pace” of growth, thereby another strong reading could support the dollar. However, unless it is accompanied by a solid wage growth, the decline in the unemployment rate and a figure above 200k are unlikely to convince the market for an early rate hike.
During the European day, Norway’s industrial production for December is forecast to fall at a slower pace than in November. This is likely to support the Norwegian krone.
Canada’s unemployment rate for January is expected to have remained unchanged at 6.7%, while the net change in employment is expected to show a rise after December’s decline. Nevertheless, following the strong downward employment report revisions in January, the market may remain skeptical about the figure and push USD/CAD higher, perhaps on concerns for further revisions in a later stage.
As for the speakers, Atlanta Fed President Dennis Lockhart speaks during the US session.
Currency Titles:
EUR/USD rebounds from the downtrend line
GBP/USD continues climbing
USD/JPY continues trendless
Gold hits again support near 1255
WTI rebounds from 47.35
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EUR/USD rebounded from near the near-term downtrend line, but the advance paused slightly below the 1.1540 (R1) resistance area. A clear move above that area is likely to confirm a forthcoming higher high on the 4-hour chart and perhaps challenge the 1.1650 (R2) obstacle. Our daily momentum studies support further upside extensions. The 14-day RSI moved higher after exiting its oversold territory and is now approaching its 50 line, while the daily MACD edged higher after crossing above its trigger line. As far as the broader trend is concerned, the price structure still suggests a longer-term downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. Therefore, I would treat any possible upside extensions of yesterday’s rebound as a corrective phase before sellers pull the trigger again.
• Support: 1.1260 (S1), 1.1100 (S2), 1.1020 (S3).
• Resistance: 1.1540 (R1), 1.1650 (R2), 1.1730 (R3).
GBP/USD continued its surge, breaking above the resistance (turned into support) barrier of 1.5270 (S1). I would expect that break to extend the bullish wave towards the 1.5420 (R1) obstacle, defined by the lows of the 14th and the 28th of August 2013. Our daily momentum studies support the notion. The 14-day RSI edged higher and crossed above its 50 line, while the daily MACD, although negative, stands above its trigger and is pointing north. As for the broader trend, as long as Cable is trading below the 80-day exponential moving average, I would consider the overall downtrend to be intact, and I would see the recent advance or any extensions of it as a retracement, at least for now.
• Support: 1.5270 (S1), 1.5200 (S2), 1.5100 (S3).
• Resistance: 1.5420 (R1), 1.5500 (R2), 1.5590 (R3).
USD/JPY moved in a consolidative manner on Thursday, staying between the key support line of 117.15 (S1) and the resistance of 117.60 (R1). Bearing in mind that the rate is still in a sideways mode, I would maintain my flat stance as far as the near-term picture is concerned. Our oscillators continue to gyrate around their neutral levels, corroborating my view. On the daily chart, the rate is still trading above both the 50- and the 200-day moving averages, but it’s been also trading within a possible triangle formation. As a result, I would wait for an escape out of the pattern before making any assumptions about the continuation or the end of the longer-term uptrend.
• Support: 117.15 (S1), 116.85 (S2), 116.00 (S3).
• Resistance: 117.60 (R1), 118.00 (R2), 118.50 (R3).
Gold slid somewhat on Thursday to find once again support marginally above the 1255 (S1) support barrier, which happens to be the 38.2% retracement level of the 2nd - 22nd of January advance. Nevertheless, the metal is still trading below the downside resistance line taken from the high of the 22nd of January, thus I would prefer to continue standing on the side-lines. As for the overall path, after the completion of an inverted head and shoulders formation on the 12th of January, on the daily chart, the price structure is still suggesting an uptrend in my view. The possibility for a lower high still exist and thus I would treat the current down wave as a corrective phase.
• Support: 1255 (S1), 1238 (S2), 1222 (S3).
• Resistance: 1285 (R1), 1295 (R2), 1305 (R3).
WTI shoot up yesterday after finding support near the black uptrend line taken from the low of the 29th of January. The rally hit resistance at 52.10 (R2) and retreated to settle slightly below the 51.50 (R1) barrier. If the bulls are willing to continue yesterday’s momentum and drive the battle above 52.10 (R2), I would expect them to pull the trigger for another test near the 54.15 (R3) line. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages, but given the positive divergence between the daily oscillators and the price action, I would prefer to remain neutral as far as the overall picture is concerned.
• Support: 50.20 (S1), 49.00 (S2), 47.35 (S3).
• Resistance: 51.50 (R1) 52.10 (R2), 54.15 (R3).
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IronFX Daily Commentary 09/02/15
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Non-farm payrolls boost USD Friday’s better-than-expected non-farm payrolls figure gave the USD a huge boost. The upward revision to previous months’ figures and the rise in average hourly earnings confirms that the labor market is strengthening. The implied interest rate on the longer-dated Fed funds futures jumped 20 bps as investors are now firmly convinced that the Fed will indeed begin normalizing rates this year. The monetary divergence should continue to push the dollar higher, in my view.
This week’s battlefront in the indirect currency wars The theme in the FX market nowadays is the indirect currency wars. Last week was the turn of the People’s Bank of China (PBOC), which cut the rate on bank reserves. The Reserve Bank of Australia (RBA) also cut rates by 25 bps because of lower inflation and an overvalued exchange rate. This was one of the clearest examples of a “currency war.”
This week, the spotlight will be on the Riksbank and the Bank of England quarterly inflation report. Will Sweden be the next central bank to ease policy? On the contrary, the positive data from the country recently suggest an improvement in the economy towards the end of last year, in our view. We expect that the improving fundamentals could take the pressure off from the Riksbank to introduce additional measures, at least for the time being. Even just holding steady could be SEK-positive in the context of today’s currency wars. As for the Bank of England, the two policy makers who had been voting for a rate increase last month joined the other members in voting for to keep rates steady, because of the increased risk of prolonged low inflation. The November inflation report warned that inflation was expected to fall below 1%. This time, they might say that inflation could even turn negative over the next couple of months. That could push rate expectations out further and weaken the pound.
Oil continues its recovery Oil prices continued to rise on Friday and this morning are up on Friday’s opening levels. One indication of the trend is that the oil price seems to have decoupled from the dollar – the dollar rallied sharply after Friday’s payroll figures, but crude prices continued to gain nonetheless. This suggests that speculators and hedge funds are cutting their short positions. It appears that the sellers who took the price down from USD 60 bbl to USD 40 bbl were not oil traders but rather were speculators. As they close out their positions, the price is coming back. It could recover further if they continue to trim shorts.
China’s trade surplus hit a record in January, but it was bad news for the commodity currencies, because the driving force behind the surge was a collapse in imports (-20% yoy), not a rise in exports, which in the event fell 3.2% yoy. Falling commodity prices, weak domestic demand and falling exports all contributed to the decline in imports. The combination creates a dilemma for the authorities in targeting the exchange rate, because a record surplus would usually mean upward pressure on the CNY, yet falling exports argue for the opposite. The likely response will be more economic stimulus, such as interest rate or RRR cuts. On the other hand, if China continues to tolerate or even encourages CNY depreciation, that will exacerbate the deflationary threat that other countries face and intensify the global currency war.
Japan’s current account surplus for December beat expectations as the trade deficit was narrower than expected. Exports rose 19% yoy while imports rose only 6.7% as the value of crude oil imports fell 22% yoy. Moreover, income from investments continues to rise as the weaker yen improves the yen-denominated value of foreign-currency inflows. The current account has been in surplus since last April on a seasonally adjusted basis. This may mean some stability for the yen for now, unless and until the Bank of Japan decides on another round of easing measures.
Today’s highlights: During the European day, Germany’s trade balance for December is coming out.
The Swiss National Bank releases its weekly sight deposit data, which could reveal if the Bank intervened in the FX market in the week ended Feb. 6. Sight deposits rose further last week, adding to signs that the central bank has intervened to weaken the CHF since removing the currency's floor against the euro. Indications of further intervention could weaken CHF somewhat.
From Canada, we get housing starts for January.
The US labor market conditions index for January will be released. This monthly index draws on a range of data to give a better sense of overall employment conditions. It aims to produce a single measure to gauge whether the labor market is on the whole improving. In December, the index came 6.1, so a reading above that, following the solid employment report on Friday, would add to signs of an improving labor market and probably push the dollar higher.
Rest of the week: Tuesday, we get China’s PPI and CPI for January. The forecast is for the CPI and PPI to soften a bit suggesting that another rate cut may be needed on top of the cut in the reserve requirement ratio on Wednesday. In the UK, industrial production for December is coming out. In the US, the Job Offers and Labor Turnover Survey (JOLTS) will give further insights into the US labor market picture.
On Wednesday, Norway’s GDP rate for Q4 is expected to remain unchanged from Q3. Given the current low oil prices compared to the previous quarters, we will be watching if the decline in oil prices have affected the country’s growth rate.
Thursday is Central Bank day, as mentioned above. We also get US retail sales for January. Falling gasoline prices may make for a fall in the headline figure, but sales excluding autos and gasoline should rise, indicating that the quarter got off to a strong start.
Finally on Friday, the preliminary Q4 GDP figures for France, Germany and the Eurozone as a whole are coming out. Eurozone’s preliminary GDP rate for Q4 is expected to have remained unchanged from Q3, while figures released from Germany, Europe’s strongest economy are likely to show that the economy expanded moderately from Q3.
Currency Titles:
EUR/USD tumbles on strong US employment data
EUR/GBP trades marginally above 0.7400
USD/JPY rockets higher
Gold falls below 1238 after NFP
WTI hits resistance near 53.15
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Currencies Text:
EUR/USD plunged on Friday, following the stronger-than-anticipated US employment data. The pair fell after finding resistance slightly below the 1.1540 (R1) barrier and paused slightly above the support hurdle of 1.1260 (S1). The rate has been trading between these two obstacles since the 27th of January and therefore I would consider the near-term path of EUR/USD to be neutral. As far as the broader trend is concerned, the price structure still suggests a longer-term downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. I still consider the recovery from 1.1100 (S2) as a corrective phase and I would expect the bears to eventually take control again.
• Support: 1.1260 (S1), 1.1100 (S2), 1.1020 (S3).
• Resistance: 1.1540 (R1), 1.1650 (R2), 1.1730 (R3).
EUR/GBP moved lower, breaking below the support (turned into resistance) of 0.7440 (R1). The rate is now trading between that line and the support of 0.7400 (S1). A clear and decisive break below 0.7400 (S1) is likely to set the stage for extensions towards our next support zone of 0.7230 (S2). In the bigger picture, the downside exit of the triangle pattern on the 18th of December signaled the continuation of the longer-term downtrend. Moreover, the completion of a short-term rising wedge formation added to the overall negative picture, while a possible dip below 0.7400 (S1) will confirm a forthcoming lower low on the daily chart. Taking all these technical signs into account, I would hold my bearish view on this pair.
• Support: 0.7400 (S1), 0.7230 (S2), 0.7100 (S3).
• Resistance: 0.7440 (R1), 0.7500 (R2), 0.7600 (R3).
USD/JPY shot up following the US labor market report but the rally was halted by the upper bound of a triangle pattern, marginally below the resistance line of 119.30 (R1). A move above that line is likely to extend Friday’s bullish wave and perhaps target the psychological number of 120.00 (R2). On the daily chart, the rate is still trading above both the 50- and the 200-day moving averages, but it’s also been trading within the aforementioned triangle formation. A clear break above the round figure of 120.00 (R2) would be the move that would convince me that the pair is resuming the longer-term uptrend.
• Support: 118.80 (S1), 118.45 (S2), 118.00 (S3).
• Resistance: 119.30 (R1), 120.00 (R2), 120.75 (R3).
Gold dipped below 1255 (R2) after the US employment data were out, and continued sliding to pause marginally below the 1238 (R1) line. Friday’s fall confirmed a forthcoming lower low on the 4-hour chart and turned the near-term picture back to the downside. I believe that a test near the 1222 (S1) area, which coincides with the 61.8% retracement level of the 2nd -22nd of January advance, is likely. As for the bigger picture, on the daily chart the possibility for a higher low still exists and thus I would still treat the decline from 1305 as a corrective phase, at least for now.
• Support: 1222 (S1), 1205 (S2), 1185 (S3).
• Resistance: 1238 (R1), 1255 (R2), 1275 (R3).
WTI continued higher on Friday to hit resistance around 53.15 (R1). Although the price is trading within a minor-term upside channel, I would see a neutral short-term picture. The reason is that there is negative divergence between our oscillators and the price action. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages, but given the positive divergence between the daily oscillators and the price action, I would prefer to stay to the sidelines as far as the overall picture is concerned as well.
• Support: 51.10 (S1), 50.20 (S2), 49.00 (S3).
• Resistance: 53.15 (R1) 54.15 (R2), 55.00 (R3).
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IronFX Daily Commentary 10/02/15
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Dollar weakens on profit-taking The dollar weakened against most G10 currencies despite a further rise Fed funds rate expectations and deepening concern about the Greek situation and Ukraine tensions. I can only assume that it was caused by profit-taking after the dollar’s payroll-induced bounce on Friday, as there was no fundamental news behind the move. Newswire reports attribute the dollar’s decline to risk-aversion owing to increased tensions, but that is clearly not true, as the best-performing currencies were the high-beta NZD and AUD, while the safe-haven JPY and CHF lagged behind.
Greek Prime Minister Tsipras vowed to keep on with the program that his government was elected on, namely allowing the current bailout program to expire on schedule at the end of this month while attempting to secure a new program. The Greek government will seek a “bridge agreement until June.” Meanwhile, German Chancellor Merkel rejected Tsipras’ plan, saying the current program was “the basis of any discussions that we have.” She added that “what counts” is the proposal “that Greece puts on the table” at tomorrow’s Eurozone finance ministers’ meeting. But Eurogroup head Dijsselbloem last week ruled out a bridge loan, so tomorrow’s meeting is likely to reject the Greek proposal. Thus the meeting is shaping up to be a key pressure point for the markets.
It’s notable though that while Greek problems are seriously affecting Greek assets, particularly bank stocks and bonds, the euro remained in a tight range vs USD yesterday. Yesterday’s range was only 0.8%, exactly in line with the average for the last six months. It looks as if the FX market may be discounting a successful conclusion to the very difficult talks that lie ahead. I agree that the two sides are likely to come to an agreement somehow, although it’s still hard to see how.
French election shows why EU has to settle Greek problem French President Hollande’s Socialist party won a narrow victory in a by-election in eastern France Sunday, but the real news was that the far-right National Front candidate won nearly 49% of the votes. This was the first parliamentary poll since the terrorist killings in Paris last month. The surprisingly good showing of the NF candidate is one reason why I believe the EU will work out some agreement with Greece. Incumbent politicians must be terrified about how the current austerity programs are fuelling support for their opponents on both the left (e.g., SYRIZA in Greece) and the right (e.g., the NF in France). They have to prove to voters that the EU is listening to them and responding to them, otherwise there will be a revolt.
China’s disinflation deepens China’s consumer price index (CPI) rose at the slowest pace in more than five years in January, rising only 0.8% yoy (vs 1.5% in December), while the producer price index (PPI) fell deeper into deflation at -4.3% yoy (vs -3.3%). As usual, bad news is good news; Shanghai stocks were up 0.8% on expectations that the slowdown in inflation would lead to further monetary easing. Such reasoning shows how divorced the entire financial world is from economic fundamentals and how dependent markets are on the actions of central banks. Nonetheless, AUD and NZD were the best-performing currencies overnight. I believe in basing trading strategies on reality, not hope, and so I maintain my bearish view of these two currencies.
Japan’s tertiary index for December fell 0.3% mom while M2 money supply growth slowed to 3.4% yoy from 3.6%, indicating that the economic recovery remains fragile and the massive injection of base money has so far failed to feed through to accelerating growth in broader monetary aggregates. The ECB might be interested to note how massive QE for months on end fails to boost money supply growth in an economy based on bank lending.
Today’s highlights: G20 meeting ends The G20 meeting ends today. According to Bloomberg, a draft of the communique effectively gave the official stamp of approval to the recent “indirect currency wars.” It said that uneven global economic growth means some nations need easy monetary policies as others move toward normalizing policy and welcomed the ECB’s quantitative easing program. In other words, everyone can continue doing as they are doing. This is bullish for USD and negative for EUR, JPY and almost every other currency, come to think of it.
During the European day, French industrial production for December is expected to rebound from the previous month.
In Norway, the annual rate of growth in the CPI for January is forecast to decline further from the Bank’s 2.5% target. Despite the recent rise in oil prices and the overall country’s economics being in a good condition, we expect the slowdown in inflation rate to weaken NOK further as investors look for further easing from Norges Bank.
UK’s industrial production for December is forecast to fall on a mom basis, with the yoy rate of growth falling in half to 0.5%. That would be three consecutive months of mom decline, suggesting that the economy contracted towards the end of 2014. The news could leave GBP vulnerable.
In the US, only data of secondary importance are coming out. The NFIB small business optimism for January is expected to have increased fractionally to its highest level since October 2006. While this indicator is not particularly market-affecting, it’s well worth watching because of the Fed’s emphasis on the labor market. Small businesses employ the majority of people in the US. The Job Opening and Labor Turnover Survey (JOLTS) report for December is forecast to show a marginal increase in the number of job openings. Following last week’s strong employment data, this is likely to keep the dollar supported. Wholesale inventories for December are also coming out.
As for the speakers, German Finance Minister Wolfgang Schaeuble and ECB Governing council member and Bundesbank President Jens Weidmann will brief reporters after the G20 meeting. The two may be questioned about whether a compromise on Greece will be achieved eventually. I would expect them to maintain their tough tone ahead of the negotiations, which could prove EUR-negative. Richmond Fed President Jeffrey Lacker also speaks.
Currency Titles:
EUR/USD hits support near 1.1260
AUD/USD rebounds from near the 0.7730 barrier
GBP/JPY finds support at 180.25
Gold rebounds somewhat
WTI breaks below a minor-term channel
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EUR/USD moved somewhat lower on Monday, hit support fractionally close to the 1.1260 (S1) support line, and rebounded to trade virtually unchanged. The rate has been trading between the aforementioned support line and the resistance obstacle since the 27th of January and therefore I would consider the near-term path of EUR/USD to be neutral. As far as the broader trend is concerned, the price structure still suggests a longer-term downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. I still consider the recovery from 1.1100 (S2) as a corrective phase and I would expect the bears to eventually take control again.
• Support: 1.1260 (S1), 1.1100 (S2), 1.1020 (S3).
• Resistance: 1.1540 (R1), 1.1650 (R2), 1.1730 (R3).
AUD/USD edged higher after finding support slightly above the 0.7730 (S1) barrier. The rate remains between that line and the resistance of 0.7870 (R1). Taking a look at our momentum signs, I would stay watchful that the rate may continue higher for a while. The MACD rebounded from near its zero line and is now pointing north, while the RSI found support at its 50 line and moved higher. As far as the bigger picture is concerned, the break below the 0.8000 (R2) psychological hurdle is the move that triggered the continuation of the longer-term downtrend, in my view. Therefore, I would treat any possible upside extensions as a corrective move before sellers seize control again. I still expect the rate to challenge the psychological line of 0.7500 (S3) in the not-too-distant future.
• Support: 0.7730 (S1), 0.7615 (S2), 0.7500 (S3).
• Resistance: 0.7870 (R1), 0.8000 (R2), 0.8035 (R3).
GBP/JPY pulled back after hitting resistance at the 181.60 (R1) barrier, which happens to be the 50% retracement level of the 2nd -16th of January decline. The decline was halted by the support line of 180.25 (S1). As long as the rate is trading above the upper boundary of a sideways channel it had been trading recently, the short-term bias remains positive, in my view. A clear move above 181.60 (R1) could set the stage for extensions towards the 182.70 (R2) hurdle, which lies marginally below the 61.8% retracement level of the 2nd -16th of January fall. I have some concerns though, derived from our short-term oscillators. The RSI moved lower after hitting resistance near its 70 line, while the MACD has topped and fallen below its signal line. On the daily chart, the picture has now turned neutral. The 176.00 barrier prevented the pair from falling further, provided strong support and the bulls took advantage of it.
• Support: 180.25 (S1), 179.50 (S2), 177.70 (S3).
• Resistance: 181.60 (R1), 182.70 (R2), 184.50 (R3).
Gold rebounded somewhat after it touched 1228 (S1) following the strong US labour data. In my view, the technical picture is little changed since yesterday. Friday’s fall confirmed a forthcoming lower low on the 4-hour chart and turned the near-term picture back to the downside. However, given our momentum signals, we may see a positive forthcoming wave, perhaps to challenge the 1255 (R1) line as a resistance this time. The RSI edged higher after exiting its oversold territory, while the MACD has bottomed and appears ready to cross above its trigger. As for the bigger picture, on the daily chart the possibility for a higher low still exists and thus I would still treat the decline from 1305 as a corrective phase, at least for now.
• Support: 1228 (S1), 1222 (S2), 1205 (S3).
• Resistance: 1255 (R1), 1275 (R2), 1285 (R3).
WTI found resistance slightly below the 54.15 (R2) barrier and slid to break below the lower bound of a minor-term upside channel. That move confirmed the negative divergence between our oscillators and the price action and increases the likelihood that the pullback may be extended. Nevertheless, WTI stood above the 50-period moving average, thus I would expect a dip below that moving average to confirm further extensions. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages, but given the positive divergence between the daily oscillators and the price action, I would prefer to stay to the sidelines as far as the overall picture is concerned as well.
• Support: 51.65 (S1), 51.10 (S2), 50.20 (S3).
• Resistance: 53.15 (R1) 54.15 (R2), 55.00 (R3).
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IronFX Daily Commentary 11/02/15
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The clash Greece and Germany seem headed for a collision course today as both sides have dug in their positions ahead of a meeting of Eurozone finance ministers today. Greek PM Tsipras said there is “no way back” for the country and that he wants a new agreement with official creditors. On top of that, the Greek defense minister upped the ante by saying that if Greece failed to get a new debt agreement with the Eurozone, it could always look to Russia or China for help. But German Finance Minister Schaeuble said there are no plans to discuss a new accord or to give the country more time. He said “it’s over” if Greece doesn’t want the final tranche of the current aid program, which of course comes with the existing requirements for austerity and structural reform. Greek markets were encouraged yesterday after some news reports about a possible compromise; the Athens stock market was up 8%, while Greek bank stocks rallied around 15%. EUR/USD has been surprisingly stable (opened with a 1.13 handle for the last three mornings) but this could be coming to an end as we come down to the wire in the negotiations.
One pundit summed up the Greek issue as follows: “Because the Greeks agreed as a condition of their bailout to do something that is impossible – to pay off their debt – the rest of the Eurozone (led by Germany) actually wants them to continue to commit to doing the impossible in order that they might be given even more money, so that their debt, which they can’t possibly pay, can rise even further…The rest of Europe seems to be just fine with Greece’s going further into debt that it can’t pay, as long as they at least promise to pay it. The fact that their doing so will mean a permanent depression in Greece doesn’t really rank very high on their lists of concerns.” As the graph shows, the governments’ debt has ballooned to over 170% of GDP, far above what was expected when the country’s problems first came to light. A country whose economy is still contracting in nominal terms cannot possibly repay such a debt and there is no hope for it to continue financing itself when 10-year rates are 10.2%.
Still, Germany cannot give in, because if it does, then Spain and Portugal are sure to follow, and that would be politically murderous. Indeed, the Spanish government has also been against any compromise, as it believes that would only empower the opposition Podemos Party. The economics are clear: Greece cannot pay its debts and needs to have them reduced. However, the Eurozone has always been a political project, not an economic one, and German politics rule against any debt write-offs. Thus we are indeed headed for a collision course. I still believe that a compromise will be reached, but as usual for Europe, only at the last minute and only under pressure from the markets. That pressure is likely to appear in the FX market as a weaker euro.
I should add though that this is not the unanimous opinion of the research team here. Others feel that Greece is in such a bad condition already (25% official unemployment, worse than the US at the depths of the Depression) that the government may feel it has nothing to lose by leaving the Eurozone. Indeed, one possible explanation for the recent stability of EUR/USD is that some investors may think that a “Grexit” would be beneficial for the euro as the group would get rid of its weakest member. That may be so in the long run, but I doubt if it would be beneficial in the short run. The big risk is that other countries follow and the euro breaks up. Between 1919 and 2007, 181 countries left currency unions or the gold standard; of these, 124 took place in the same year or year after another country left in the same region. In other words, when one country leaves, others tend to follow. The market would price in this uncertainty if Greece left, meaning a weaker euro, in my view.
The schedule for Greece is as follows:
Today: Eurozone finance ministers (Eurogroup) meets to discuss further aid to Greece.
Thur & Fri: EU summit. Russia & Ukraine will be high on the agenda as well as Greece.
16/17 Feb: Eurogroup meets again; Greece needs to submit a bail-out extension request by then. This may be the decisive meeting.
18/19 Feb: ECB bi-weekly review of emergency liquidity assistance (ELA) for Greece.
28 Feb: Bail-out ends. Greece is on its own financially if no agreement is reached.
Fed talk remains hawkish Two Fed officials made quite hawkish comments yesterday, which may have contributed to the dollar’s general rise against most G10 currencies (except NOK and SEK). Richmond Fed President Lacker said the recent US data have “solidified” his view that the Fed should raise rates in June. “The data between now and then may change my mind, but it would have to be surprising data,” he said. Note however that Lacker does not vote on the FOMC. However, his comments were echoed by San Francisco Fed President Williams, who said in the FT that economic conditions are "getting closer and closer to those where it makes sense to start thinking seriously about the starting this process of normalization.” Fed funds rate expectations continued to rise, again the opposite of what is happening in most other countries. This monetary policy divergence should continue to support a stronger dollar.
Australia’s home loans rose more than expected in December and consumer confidence also rose. Yet the AUD didn’t benefit from the news. In fact all the commodity currencies were weaker as oil plunged on comments yesterday from the International Energy Agency (IEA) in Paris that excess supply will persist to the middle of this year. CAD was the worst performing G10 currency as Bank of Canada Gov. Poloz argued that the CAD was falling not because he is talking down the currency, but because the economy is deteriorating.
Today’s highlights: Norway’s Q4 GDP is expected to rise a bit from the previous quarter. On top of the better-than-expected inflation rate on Tuesday, this may take off some pressure from the Norges Bank to cut rates in its March meeting. This could prove NOK-supportive.
In Sweden, PES unemployment rate for January is expected to rise a bit, in line with the estimated rise in the official unemployment rate on Thursday.
As for the speakers, beyond the Eurozone finance ministers, ECB Executive board member Benoit Coeure and Dallas Fed President Richard Fisher speak. Benoit Coeure said recently that debt cancellation is a political decision and the ECB cannot agree on any debt relief involving bonds held by the ECB as this is legally impossible.
Currency Titles:
EUR/USD stays near the 1.1260 line
NZD/USD hits resistance at 0.7450 again
USD/JPY breaks the upper bound of the triangle
Gold trades somewhat lower
WTI tumbles near 50.00
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EUR/USD slid somewhat on Tuesday, found support once again fractionally close to the 1.1260 (S1) line and rebounded to trade virtually unchanged for a second consecutive day. The rate has been trading between the aforementioned support line and the resistance obstacle of 1.1540 (R1) since the 27th of January and therefore I would hold the view that the near-term picture of EUR/USD stays neutral. As far as the broader trend is concerned, the price structure still suggests a longer-term downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. I still consider the recovery from 1.1100 (S2) as a corrective phase and I would expect the bears to eventually take control again.
• Support: 1.1260 (S1), 1.1100 (S2), 1.1020 (S3).
• Resistance: 1.1540 (R1), 1.1650 (R2), 1.1730 (R3).
NZD/USD rose slightly yesterday but the advance was halted again by the 0.7450 (R1) hurdle, which lies fractionally close to the 38.2% retracement level of the 15th of January – 3rd of February down move. Given the inability of the longs to drive the battle above that area, and given the negative divergence between both our short-term oscillators and the price action, I would expect the forthcoming wave to be negative. Perhaps for another test at the 0.7340 (S1) support. A dip below that level could prompt extensions towards the next barrier, at 0.7215 (S2). On the daily chart, the break below 0.7625, the lower bound of the sideways range containing the price action from the beginning of December until the 21st of January, signaled the continuation of the longer-term downtrend and turned the overall outlook of the pair back negative. Therefore, I would treat the recovery from 0.7175 (S3) as a corrective phase before sellers take control again.
• Support: 0.7340 (S1), 0.7215 (S2), 0.7175 (S3).
• Resistance: 0.7450 (R1), 0.7500 (R2), 0.7585 (R3).
USD/JPY shot up again after finding solid support near the 118.45 (S3) barrier. The rate broke above the upper bound of a triangle pattern that had been containing the price action since November, and above the 119.30 (S1) resistance (now turned into support). I would now expect a test near the psychological number of 120.00 (R1). On the daily chart, the rate is still trading above both the 50- and the 200-day moving averages and above the upper line of the aforementioned triangle. However, I would need to see a clear break above the round figure of 120.00 (R1) to convince me that the pair is resuming the longer-term uptrend.
• Support: 119.30 (S1), 118.80 (S2), 118.45 (S3).
• Resistance: 120.00 (R1), 120.75 (R2), 121.85 (R3).
Gold declined somewhat on Tuesday but stayed above the 1228 (S1) support line. The technical picture is once again little changed. After Friday’s fall, the short-term picture of the precious metal stays negative, and we may see the bears testing the 1222 (S2) barrier in the near future. Note that the 1222 (S2) line lies marginally close to the 61.8% retracement level of the 2nd – 22nd of January advance. As for the bigger picture, on the daily chart the possibility for a higher low still exists and thus I would still treat the decline from 1305 as a corrective phase, at least for now.
• Support: 1228 (S1), 1222 (S2), 1205 (S3).
• Resistance: 1255 (R1), 1275 (R2), 1285 (R3).
WTI tumbled after breaking below the lower bound of a minor-term upside channel and below the 50-period moving average. Crude oil is now trading near the support area of 50.20 (S1), which currently coincides with the 200-period moving average. A dip below that support territory is likely to set the stage for extensions towards the 49.00 (S2) hurdle in my view. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages, but given the positive divergence between the daily oscillators and the price action, I would prefer to stay to the sidelines as far as the overall picture is concerned.
• Support: 50.20 (S1), 49.00 (S2), 47.35 (S3).
• Resistance: 51.10 (R1) 51.60 (R2), 52.55 (R3).
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IronFX Daily Commentary 12/02/15
Language English
Is there a Greek version of Russian Roulette? Greek Finance Minister Yanis Varoufakis is an economics professor who is a specialist in game theory. I wonder what game he is playing now? Does Greece have its own version of Russian Roulette? The Eurozone finance ministers' first attempt to deal with Greece’s new demands broke down last night. After six hours of talks, the two sides failed to agree even on how to go forward to resolve the impasse. They left the meeting with no further talks scheduled before another meeting of finance ministers next Monday, which is the deadline for reaching some agreement to extend Greece's current €172bn bailout program beyond its Feb. 28 expiration. According to the FT, Eurozone officials involved in the talks said that the two sides had agreed on a joint statement that would have held out the chance of reaching a deal. But after the meeting broke up, Varoufakis consulted officials back in Athens and then raised new objections and the statement was scrapped. The disagreement may be over the question of whether they are “extending” the current bailout. Greek PM Tsipras believes he was elected on a mandate not to extend the current bailout and has resolved not to do so under any circumstances, so they have to find some way of reaching an agreement that doesn’t use the word “extend.”
It’s rather incredible to me that the market doesn’t seem to care about this development. At the time of writing, EUR/USD is virtually unchanged from where it was 24 hours ago. That makes it actually the best-performing of the G10 currencies against the dollar, which gained against all the others as more Fed officials came out in favour of tightening (AUD in particular, followed by NZD and NOK). Yesterday’s EUR/USD range was also unusually narrow at 0.45%, about half the six-month average (0.81%). There is some nervousness about the euro reflected in the options market, where the 25 delta ATM risk reversal for EUR/USD has gone further negative, implying increasing demand for euro puts relative to calls. Could it be that the Swiss National Bank is intervening in the spot market to keep the euro from weakening? It does seem like there are supernatural forces operating in this currency pair. Either that, or investors have a lot of faith in the ability of the Eurozone finance ministers to pull a rabbit out of their hat at the last minute. I think they will too, but I’m not sure I’d be willing to put money on it.
More Fed hawks Another couple of Fed officials were heard in favor of hiking rates. Dallas Fed President Fisher said he thought that March was the appropriate time to raise rates, but that he lost the argument. He steps down from the Dallas Fed next month. St. Louis Fed President Bullard said that he’s becoming more confident that inflation will rise to the Fed’s target and the he’d like to hike rates sooner rather than later. This is at least four Fed presidents who have said this week that they want to raise rates this year. That’s a pretty good cross section and confirms the divergence in monetary policy between the US and the rest of the world.
AUD plunges on jobless jump Australia’s unemployment rate unexpectedly jumped to 6.4% in January from 6.1% in December (expected: 6.2%). This confirmed the concerns over the labor market that the Reserve Bank of Australia (RBA) expressed at their last meeting. The market now sees a 67% chance of a rate cut in March, up from 34% at the start of the week. Given the political shenanigans going on in Australia, it may be that the RBA thinks the economy could use more monetary support than would otherwise be the case. I remain bearish AUD.
Today’s highlights: During the European day, the highlight will be the Riksbank monetary policy meeting and the Bank of England quarterly inflation report. At their last meeting, Sweden’s central bank decided to hold the repo rate unchanged at 0% and judged that the repo rate needs to remain at zero until 2H 2016. Following the recent improving fundamentals in the economy towards the end of 2014, including the rise in the monthly CPIF inflation rate in December, the pressure on the Bank to introduce additional measures has lessened. Instead, we believe they are most likely to introduce some macroprudential measures, such as a mortgage cap to avoid over-heating the housing market, and to further postpone the first increase of the repo-rate until the 1H of 2017. Given the market’s expectation that Sweden is next in line to come up with further easing measures, such an outcome would probably cause SEK to strengthen, at least temporarily.
As for the Bank of England, the two policy makers who had been voting for a rate increase last month joined the other members in voting for to keep rates steady, because of the increased risk of prolonged low inflation. The November inflation report warned that inflation was expected to fall below 1%. This time, they might say that inflation could even turn negative over the next couple of months. That could push rate expectations out further and weaken GBP.
Today’s indicators: German final CPI for January is expected to confirm the preliminary reading. Eurozone’s industrial production for December is also coming out.
In the US, headline retail sales for January are forecast to fall at a slower pace from December. The focus however, will be on the core figure as the headline can be distorted by the low oil prices. The forecast is for the figure to rise, a turnaround from the previous month. That could strengthen the dollar a bit. Initial jobless claims for the week ended February 7 are also due out.
Today’s speakers: Beside the Riksbank Governor Stefan Ingves and BoE Governor Mark Carney, ECB Executive Board member Peter Praet, Norges Bank Governor Oeystein Olsen and ECB Vice President Vitor Constancio also speak.
Currency Titles:
EUR/USD continues sideways
AUD/USD falls after Australia’s jobless rate rises
GBP/JPY hits 184.00 ahead of BoE inflation report
Gold continues lower
WTI breaks below 50.00
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EUR/USD continued trading in a consolidative mode on Wednesday, staying between the 1.1260 (S1) support line and the resistance of 1.1360 (R1). The rate has been trading in a sideways manner since the 27th of January and the near-term picture stays neutral. As far as the broader trend is concerned, the price structure still suggests a longer-term downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. I still consider the recovery from 1.1100 (S2) as a corrective phase and I would expect the bears to eventually take control again. A clear break below the key support of 1.1260 (S1) is likely to set the stage for another test near the 1.1100 (S2) area.
• Support: 1.1260 (S1), 1.1100 (S2), 1.1020 (S3).
• Resistance: 1.1360 (R1), 1.1540 (R2), 1.1650 (R3).
AUD/USD tumbled during the Asian morning after Australia’s unemployment rate rose 0.3 ppts, equaling a 12-year high. The pair fell below the support (turned into resistance) hurdle of 0.7730 (R1) and is now heading towards the support barrier of 0.7615 (S1), defined by the low of the 3rd of February. I believe that a decisive move below that obstacle is likely to see scope for extensions towards the psychological figure of 0.7500 (S2). Our momentum studies detect strong downside momentum and corroborate my view. The RSI just crossed below its 30 line and is pointing down, while the MACD lies below both its zero and trigger lines, also pointing south. As far as the bigger picture is concerned, the break below the 0.8000 (R3) psychological hurdle is the move that triggered the continuation of the longer-term downtrend, in my opinion.
• Support: 0.7615 (S1), 0.7500 (S2), 0.7330 (S3).
• Resistance: 0.7730 (R1), 0.7870 (R2), 0.8000 (R3).
GBP/JPY raced higher and hit resistance at 184.00 (R1) before pulling back somewhat. Today, we have the Bank of England quarterly inflation report, where policy makers are expected to scale back their inflation forecasts. Having that in mind and also taking a look at our near-term momentum studies, I would expect the forthcoming wave to be negative. The RSI exited its overbought territory and is now testing its upside support line, while the MACD, shows sign of topping and could fall below its trigger any time soon. A dip below the support line of 182.70 (S1) could challenge the 181.60 (S2) hurdle. However, the price structure on the 4-hour chart remains higher peaks and higher troughs, thus I would treat any possible declines as a corrective move before buyers pull the trigger again.
• Support: 182.70 (S1), 181.60 (S2), 180.25 (S3).
• Resistance: 184.00 (R1), 184.50 (R2), 185.00 (R3).
Gold continued its slide on Wednesday and hit support a few dollars below the 1222 (S1) barrier, which lies marginally close to the 61.8% retracement level of the 2nd – 22nd of January advance. The short-term outlook stays negative and I would expect another move below 1222 (S1) to target the 1205 (S2) zone and the neckline of the inverted head and shoulders seen on the daily chart and completed on the 12th of January. In the bigger picture the possibility for a rebound and a higher low near the neckline of the pattern still exists and thus I would still treat the decline from 1305 as a corrective phase, at least for now.
• Support: 1222 (S1), 1205(S2), 1185 (S3).
• Resistance: 1228 (R1), 1245 (R2), 1255 (R3).
WTI fell after breaking below the support (turned into resistance) line of 50.20 (R1) and below both the 50- and the 200-period moving averages. The picture remains negative in my view, but having in mind our momentum signs, I would expect the next wave to be to the upside, perhaps to challenge as a resistance the 50.20 (R1) area. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages, but given the positive divergence between the daily oscillators and the price action, I would prefer to stay to the sidelines as far as the overall picture is concerned.
• Support: 48.75 (S1), 47.35 (S2), 46.50 (S3).
• Resistance: 50.20 (R1) 51.10 (R2), 51.60 (R3) .
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IronFX Daily Commentary 13/02/15
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Monetary policy divergence lives Yesterday was a great example of the monetary policy divergence that is driving (some) FX rates nowadays. Faced with similar circumstances, the Riksbank and the Bank of England interpreted the inflation outlook totally differently. The Riksbank pointed to strong labor markets and signs that “inflation has bottomed, and is now rising,” but cut rates and instituted a “mini-QE” nonetheless in part because of lower oil prices. In the UK however Bank of England Gov. Carney dismissed lower oil prices as a temporary factor and emphasized that the Bank is on the path to hike. We have heard from many central banks about the role of lower oil prices in creating a disinflationary environment. Britain however is looking through the drop (which naturally will fall out of the year-on-year comparison in a year) and move up their forecast for when inflation will come back to target. Its monetary policy is clearly diverging from other countries and this should support GBP on the crosses going forward, although perhaps not against USD, which is also on the path to hike. As we approach the elections in May though political risk may come to the fore and GBP may weaken again, as there are several possible results of the election that could be disturbing to markets.
After four consecutive opens with a 1.13 handle, EUR/USD is starting trading in Europe at 1.1434. The cease fire in Ukraine has boosted the euro, while weaker-than-expected US retail sales hurt the dollar all around. The recent pattern is for US retail sales to disappoint and EUR/USD to move higher on the day, but for the move to reverse the next day – so watch out today!
Talk of EU/Greece compromise EUR/USD is also being boosted by talk of a compromise between the EU and Greece. According to Bloomberg, Germany won’t insist that all elements of Greece’s current aid program continue. As long as the program is extended, Germany might be willing to compromise on the size of Greece’s budget surplus requirement and privatizations. For its part, Greece is prepared to commit to a primary budget surplus, as long as it’s lower than the current 4% of GDP. The German newspaper Die Welt said a deal could be reached by the deadline next Monday. This seems to me like a reasonable basis for a compromise: Germany gets what it wants, namely a continuation of the program, while Greece gets some relief from austerity. This would be very good news for the euro and indeed for risk assets overall as it would remove the biggest risk hanging over the global financial system. A solution to the Greek problem might therefore be negative for JPY and CHF as it would diminish any safe-haven demand.
RBA testimony Reserve Bank of Australia (RBA) Governor Glenn Stevens said in his semi-annual testimony before Parliament that he still thinks monetary policy has a role in supporting the economy, but that its power to boost demand may be less than in the past because of the already-low level of rates. His comments had little impact on AUD.
Today’s highlights: During the European day, the spotlight will be on the preliminary Q4 GDP figures for France, Germany and the Eurozone as a whole. France’s GDP grew 0.1% qoq, as expected, while Germany’s GDP beat expectations tremendously, rising 0.7% qoq instead of +0.3% as expected (previous: +0.1%). This creates some upside rise to the Eurozone’s preliminary GDP rate for Q4, which is expected to have remained unchanged from Q3 at +0.2% qoq. This could prove EUR-positive.
In Canada, manufacturing sales for December are forecast to rise, a turnaround from the previous month.
In the US, the preliminary University of Michigan consumer sentiment for February is expected to remain unchanged at its highest level since January 2004. The surveys of 1-year and 5-to-10 year inflation expectation outlook are also coming out. While expectations for inflation one year ahead have been trending lower, expectations about inflation over the longer term remain steady at close to 3%, which is quite sufficient given the Fed’s inflation target is only 2%.
As for the speakers, Riksbank Deputy Governor Kerstin af Jochnick and Dallas Fed President Richard Fisher speak.
Currency Titles:
EUR/USD wakes up
GBP/USD rockets higher after BoE’s inflation report
EUR/JPY slides on BoJ comments
Gold continues lower
WTI breaks above 50.00
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EUR/USD raced higher on Thursday, breaking above the resistance (turned into support) barrier of 1.1360 (S1). I would now expect the rate to continue higher and challenge the key resistance hurdle of 1.1540 (R1). Our momentum studies corroborate my view and amplify the case for further bullish extensions. The RSI edged higher after crossing above its 50 line, while the MACD, already above its trigger line, obtained a positive sign and is now pointing north. As far as the broader trend is concerned, the price structure still suggests a longer-term downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. Therefore, I would still consider any possible upside waves as corrective moves.
• Support: 1.1360 (S1), 1.1260 (S2), 1.1100 (S3).
• Resistance: 1.1540 (R1), 1.1650 (R2), 1.1730 (R3).
GBP/USD shot up yesterday following the more-optimistic-than-expected tone of BoE Governor Mark Carney, in his press conference presenting the Bank’s quarterly inflation report. Carney said the current low inflation rate is mostly a consequence of low oil prices and that inflation will reach the Bank’s target within two years. Cable surged and violated two resistance (now turned into support) hurdles. The rally was halted at our 1.5420 (R1) line, determined by the low of the 28th of August 2013. The short-term bias stays positive in my view, thus I would expect a possible move above the 1.5420 (R1) line to prompt extensions towards the psychological obstacle of 1.5500 (R2). As for the broader trend, as long as Cable is trading below the 80-day exponential moving average, I would consider the overall downtrend to be intact, and I would see the recent advance or any extensions of it as a retracement, at least for now.
• Support: 1.5350 (S1), 1.5300 (S2), 1.5200 (S3).
• Resistance: 1.5420 (R1), 1.5500 (R2), 1.5590 (R3).
EUR/JPY declined on Thursday on a Bloomberg report citing “some BoJ officials” as arguing that additional stimulus could be counterproductive. The pair hit resistance at 136.70 (R1) and the upper bound of a possible rising wedge formation, before sliding to find support near the 135.20 (S1) area. Given that the rate is still within the wedge formation I would prefer to adopt a neutral stance as far as the short-term picture is concerned and wait for the break out of the pattern. On the daily chart, after the completion of a head and shoulders formation on the 31st of December, the price structure has been suggesting a downtrend. Therefore, I would see the strong recovery from 130.00 as a corrective phase, at least for now.
• Support: 135.20 (S1), 134.15 (S2), 132.30 (S3).
• Resistance: 136.70 (R1), 137.65 (R2), 139.35 (R3).
Gold rebounded somewhat and is now trading between the support of 1222 (S1), which lies marginally close to the 61.8% retracement level of the 2nd – 22nd of January advance, and the resistance of 1228 (R1), marked by the low of the 6th of February. In my view, the short-term outlook stays cautiously negative and I would expect a possible dip below 1222 (S1) to target the 1205 (S2) zone and the neckline of the inverted head and shoulders seen on the daily chart and completed on the 12th of January. However, paying attention to our short-term oscillators, I would stay careful that the rebound may continue for a while. The RSI moved higher after exiting is oversold field, while the MACD has bottomed and crossed above its trigger line. In the bigger picture the possibility for a rebound and a higher low near the neckline of the pattern still exists and thus I would still treat the decline from 1305 as a corrective phase, at least for now.
• Support: 1222 (S1), 1205(S2), 1185 (S3).
• Resistance: 1228 (R1), 1245 (R2), 1255 (R3).
WTI moved higher on Thursday and today during the Asian morning, it managed to overcome the 51.60 (S1) hurdle. I would now expect the price to challenge the 52.55 (R1) barrier of the prior uptrend line taken from back at the low of the 29th of January. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages, but given that the 14-day RSI entered its bullish field and that the daily MACD appears ready to get a positive sign, I would prefer to take the side lines as far as the overall picture is concerned, since there is still a possibility for further upside correction.
• Support: 51.60 (S1), 51.00 (S2), 49.65 (S3).
• Resistance: 52.55 (R1) 54.00 (R2), 55.00 (R3).
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