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IronFX Daily Commentary | 30/03/15
Language English
Dollar generally higher despite lower US rates The dollar was opening higher in Europe against almost all the G10 currencies and the EM currencies that we track even though Fed funds rate expectations ended the day lower Friday and bond yields declined somewhat. Fed Chair Janet Yellen Friday said “conditions may warrant an increase in the federal funds rate target sometime this year” but that rates would rise “only gradually” and that tightening could even reverse if conditions warranted it. These comments were quite in line with what Fed officials have been saying up to now. Judging from the market response though, the statements increased the market’s conviction that a rate hike is coming (hence the stronger dollar) while lowering the market’s assumed path of rate increases (hence lower interest rates).
The Commitment of Traders (COT) report showed that while investors generally became less bullish on USD, reducing long DXY positions and closing out some short currency positions, they increased their net short EUR positions by a substantial 14% to a record short position. This suggests that in addition to USD strength, we are likely to see EUR underperformance in the coming week. Quantitative easing plus Greece’s troubles are probably behind that.
Greece the focus of attention again Attention today is likely to focus on Greece as PM Tsipras updates Parliament on talks held over the weekend between the Greek government and the group of creditors formerly known as the troika (European Commission, ECB and the IMF). The Greek government apparently has submitted the long-awaited list of reforms to the lenders. According to the FT, officials who have seen the list said that while it contained some concessions, it depended too much on optimistic economic assumptions and suffered from the same lack of detail in some of the areas that have caused concerns during previous talks. In particular, the list failed to include reforms to labor laws and Greece’s pension system, two areas that monitors have insisted are essential to finalising the bailout program but that Greek officials say remain “red lines.” So there still remains a big gap between the two sides.
According to the Greek newspaper Kathimerini, even if there is a broad agreement between Greece and its creditors, it is unlikely that eurozone finance ministers will meet this week or even the week after to approve the release of even part of the EUR 7.2bn remaining in bailout money. Part of the reason is because of the Easter Sunday holiday, which falls this coming Sunday according to the Western calendar and the following Sunday according to the Greek Orthodox calendar. But also it appears that the technocrats have made only “limited progress,” the newspaper said.
The problem is, just how much longer does Greece have? How much more money does it have and how long can it finance itself for? Some reports have said that it will run out of money by April 8th. If so, and they still haven’t worked out their differences by now, then we could be in for some last-minute tensions.
Oil plunges on possible Iran settlement Oil plunged Friday as diplomats worked towards a settlement of the Iranian nuclear issue. Settling that problem would free about 1mn b/d supply to come onto the world market, worsening the glut on the market. It may be that market participants expect Iran to co-operate in order to achieve an agreement, which not only would free Iranian oil for the market but also reduces the risk of a supply interruption from Saudi’s incursion into Yemen. I remain bearish on oil because of the increase in US supply, as I mentioned Friday, regardless of what happens with Iran. This would suggest long USD/CAD and USD/NOK positions could be profitable.
Japan industrial production fell in Feb Industrial production fell 3.4% mom, a larger decline than expected. Some of the decline could be due to the Chinese New Year in February. Nonetheless, the news highlights the fragility of Japan’s recovery and is likely reaffirm the administration’s commitment to a weaker currency to encourage exports. JPY-negative.
Today’s highlights: During the European day, German CPI for March is coming out, after several regional states release their data in the course of the morning. As usual, we will look at the larger regions for a guidance on where the headline figure may come in, as an indication for the near-term bias of the common currency. A better-than-expected headline figure could support EUR a bit.
The Swiss National Bank releases its weekly sight deposit data, which could show if the Bank intervened in the FX market in the week ended March 27. Indications of intervention could weaken CHF somewhat. So far the SNB does not seem to have intervened; on the contrary, deposits have decreased a bit. However, EUR/CHF has started to move down again recently and so it will be worth noting whether they have resisted the move.
In the UK, we get mortgage approvals for February.
In the US, we get the personal income and personal spending for February. Personal income is expected to rise at the same pace as previously, while personal spending is anticipated to rise, a turnaround from the previous month. The nation’s yoy rate of the PCE deflator and core PCE are also coming out. The nation’s yoy rate of the PCE deflator is expected to rise a bit, while the core PCE rate is forecast to remain unchanged, in line with the 3rd estimate of Q4 core PCE in Friday’s GDP figures. Pending home sales for February and Dallas Fed manufacturing index for March are also coming out.
Rest of the week: On Tuesday, in the UK, the 3rd estimate of Q4 GDP is coming out. The final estimate of GDP figure is expected to confirm the preliminary reading. Therefore the market reaction could be minimal as usual. The 1st estimate of Eurozone CPI for March is also coming out. Following the introduction of the quantitative easing program by the ECB to boost growth and prices, the impact of the CPI on EUR is not as great as it used to. Daniele Nouy, Chair of the Single Supervisory Mechanism, will testify to the European Parliament. She may give some indication of how her department is getting along with the ECB Governing Council as they strive to regulate Greek banks while keeping the country from defaulting.
On Wednesday, during the Asian session, Bank of Japan releases its Tankan business confidence survey for Q1. All the indices for larger companies and the small companies are forecast to increase. This would be a favorable result for Japanese stocks and USD/JPY could rise as a result.
The manufacturing PMI figures for March from several European countries, the UK and the final figure for the Eurozone as a whole are also due out. As usual, the final forecasts for the French, the German and Eurozone’s figures are the same as the initial estimates. In the US, the main event will be the ADP employment report released as usual two days ahead of the NFP. The ADP report is expected to show that the number of new jobs in March increased from February, which would be USD-supportive. The ISM manufacturing PMI is also due out.
On Thursday, the only noteworthy indicator we get is the UK construction PMI for March. The minutes from the March ECB meeting will be released, which will shed some light on members’ views on QE.
Friday is NFP day! The market consensus is for an increase in payrolls of 250k in March, down from 295k in February. The expected increase in March seems moderate compared to the astounding increases in the recent months. Nonetheless it would still be a strong figure consistent with a firming labor market. The unemployment rate is forecast to remain unchanged at 5.5%, while the average hourly earnings are expected to accelerate a bit on a yoy basis. A robust labor report in line with estimates would keep the Fed on track to raise rates this year, which could help USD recover its lost glamour. Elsewhere in the world, Good Friday will be a national holiday in Europe, Australia, New Zealand and Canada.
Currency Titles:
EUR/USD trades virtually unchanged
EUR/JPY turns down
GBP/USD still in a trendless mode
Gold pulls back below 1200
WTI trades back below 50
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EUR/USD found support at 1.0800 (S1), rebounded to hit resistance at 1.0950 (R1), and then retreated somewhat to eventually trade virtually unchanged. The rate is trading above a possible uptrend line taken from the low of the 13th of March, but our momentum studies favor future declines. The RSI stands below 50 and points south, while the MACD lies below its trigger and could obtain a negative sign any time soon. Therefore, I would switch my stance to neutral at the moment. A break below the support of 1.0800 (S1) is the move that could turn the short-term bias to the downside in my view, and perhaps set the stage for extensions towards our next support obstacle at 1.0700 (S2). As for the broader trend, I still see a longer-term downtrend. The pair is forming lower highs and lower lows below both the 50- and the 200- day moving averages. As a result, I would treat the recovery from 1.0460 as a corrective phase of the larger down path.
• Support: 1.0800 (S1), 1.0700 (S2), 1.0610 (S3).
• Resistance: 1.0950 (R1), 1.1045 (R2), 1.1160 (R3).
EUR/JPY fell below the short-term uptrend line on Thursday, confirming the negative divergence between our short-term oscillators and the price action. On Friday, the rate rebounded somewhat but hit resistance marginally above 130.30 (R1) and slid again. In my opinion, the short-term picture has turned negative and I believe that a break below 129.00 (S1) could see scope for extensions towards 128.00 (S2). Our short-term momentum indicators support that scenario. The RSI found resistance slightly below its 50 line and turned down, while the MACD, already below its signal line, dipped into its negative field. As for the broader trend, I still see a longer-term downtrend. The recent switch in the short-term outlook corroborates my view that the recovery from 126.90 was just a retracement of the larger down path.
• Support: 129.00 (S1), 128.00 (S2), 126.90 (S3).
• Resistance: 130.30 (R1), 131.85 (R2), 133.50 (R3).
GBP/USD moved somewhat lower after finding resistance at 1.4925 (R1). I would maintain the view that the short-term picture is neutral. The trendless outlook is also supported by our near-term momentum indicators. The RSI gyrates around its 50 line, while the MACD lies near it zero line and points sideways. However, zooming in on the 1-hour chart, our hourly oscillators amplify the case for a leg down. The 14-hour RSI fell below its 50 line, while the hourly MACD crossed below both its zero and trigger lines. A clear break below 1.4820 (S1) could confirm these momentum signs and perhaps pull the trigger for the next support barrier at 1.4725 (S2). As for the bigger picture, the price structure on the daily chart still suggests a larger downtrend. This is another reason I would expect the rate to exit its sideways range to the downside .
• Support: 1.4820 (S1), 1.4725 (S2), 1.4640 (S3).
• Resistance: 1.4925 (R1), 1.5000 (R2), 1.5050 (R3).
Gold slid on Friday and fell back below the psychological line of 1200 (S1). Taking into account our momentum signs, I would expect the tumble to continue and challenge our support line 1185 (S1). The RSI broke below its upside support line and looks ready to move below 50, while the MACD, already below its upside support line and below its trigger line, is pointing down. A decisive dip below 1185 (S1) could extend the decline, probably towards 1175 (S2). As far as the bigger picture is concerned, since the peak at 1307, the price structure has been lower highs and lower lows. I would consider the recovery from around 1140 as a corrective move which, having in mind the short-term picture, might be over.
• Support: 1185 (S1), 1175 (S2), 1165 (S3).
• Resistance: 1200 (R1), 1222 (R2), 1235 (R3).
WTI collapsed on Friday, breaking below the key line of 50 and completing the failure swing top formation mentioned in Friday’s comment. WTI drilled three support barriers in a row and is now trading below 48.70 (R1). The outlook on the 1-hour chart has now turned negative and I would expect the bears to target the support line of 47.00 (S1). Our short-term momentum studies support the notion. The RSI continued lower and could move below its 30 line soon, while the MACD keeps falling below both its trigger and zero lines. On the daily chart, WTI is trading well below the 200-day moving average, and is now back below the 50-day one. This keeps the longer-term downtrend still intact. Nevertheless, there is positive divergence between the daily oscillators and the price action. Therefore, I would prefer to wait for price and momentum alignment before getting again confident on the larger down path.
• Support: 47.00 (S1), 45.80 (S2), 45.30 (S3).
• Resistance: 48.70 (R1) 49.45 (R2), 50.00 (R3).
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IronFX Daily Commentary | 31/03/15
Language English
Dollar continues to strengthen End-month and end-quarter demand pushed the dollar higher Monday. Much of the demand was apparently due to such position-squaring rather than fresh risk-taking. Fed funds rate expectations were largely unchanged and bond yields declined a modest 2 bps, so it was not due to any large change in understanding of the Fed’s view. Today being the last day of the month and quarter, we could see continued demand. The question then is, will it continue on Wednesday when April begins? I expect so. In contrast to what we’ve been seeing over the past several weeks, the recent US economic indicators have generally been good. Yesterday’s February personal income and pending home sales both beat estimates (although personal spending was below forecast), suggesting that perhaps US indicators are perhaps starting to improve (although of course one day does not make a trend). In any case, the market is likely to start looking forward to another strong US payrolls figure this Friday which, coming out on a thin holiday day, may have a greater-than-usual impact on the dollar.
USD/JPY seasonal pattern in April Following the above discussion of seasonal patterns, I was going to write a sentence or two about how USD/JPY was likely to move higher in April. Although the seasonal repatriation of Japanese funds in March ended years ago with the introduction of consolidated accounting, the outflow of funds in the new fiscal year beginning in April is still a real phenomenon. That’s because people and companies make payments to insurance and pension funds at the beginning of the new fiscal year in April and investment companies put into effect their new investment plans starting in the month. However when I looked at the seasonal pattern, I found that unfortunately, reality did not agree with theory: in fact, USD/JPY has over the last decade tended to move lower in April, not higher (i.e., JPY tended to strengthen). However, the hit ratio is so evenly balanced (6 years down, 4 years up) and the range between the largest decline (-3.7%) and largest rise (+4.5%) is so large as to suggest that there is no dominant seasonal trend. In that case, I think the determining factor for JPY this year will be continued capital outflows as the Bank of Japan buys up all the Japanese Government Bonds, leaving investors to look overseas for investment opportunities.
AUD/NZD moving towards parity AUD was the big loser overnight as investors start thinking about the possibility of AUD/NZD, already at historic lows, moving towards parity. The country’s domestic data released Monday was not that bad: HIA new home sales were up 1.1% mom in February, a slowdown from January but still rising, while private sector credit expanded at the same yoy pace as in January. However the external environment is deteriorating, and that’s what’s affecting AUD. Monday the price of iron ore fell to its lowest since May 2009. Does anyone need a reminder of just how bad the global economy was in May 2009? China will release its official March manufacturing PMI on Wednesday and the market expects another reading below 50, which would be the third in a row. With oil prices down as well, the outlook for commodity producers is not that great right now. The RBA meets on April 7th and the market is now pricing in a 79% likelihood of a cut in rates at the meeting, up from 68% a week ago. AUD seems to be the #1 currency in the firing line.
Today’s highlights: During the European day, Eurozone’s flash CPI for March and unemployment rate for February are coming out. The turn of the German inflation rate to positive on Monday increased the likelihood that the bloc’s deflation could moderate somewhat. This could prove EUR-supportive. However, following the introduction of the quantitative easing program by the ECB, the impact of the CPI on EUR is not as great as it used to. Thus the reaction in the markets could be limited. German unemployment for March is also due out.
In the UK, the 3rd estimate of Q4 GDP is released. The final estimate of GDP figure is expected to confirm the preliminary reading, therefore the market reaction is likely to be minimal as usual.
In the US, we get S & P/Case-Shiller house price index for January, which is expected to have decelerated from December but still show house prices rising. Chicago purchasing managers’ index and the Conference Board consumer confidence index both for March are also to be released. These are likely to keep confidence up and the USD supported.
From Canada, the monthly GDP for January is expected to contract a bit, a turnaround from the previous month. This is expected to cause the annual growth rate to decelerate and keep CAD under selling pressure.
We have several Fed speakers on Tuesday’s agenda: Richmond Fed President Jeffrey Lacker, Atlanta Fed President Dennis Lockhart, Cleveland Fed President Loretta Mester and Kansas City Fed President Esther George speak. ECB Supervisory Board Chair Daniele Nouy testifies before the European Parliament economic and monetary affairs committee.
Currency Titles:
EUR/USD breaks below the short-term uptrend line
USD/JPY trades above 120.00 again
USD/CAD continues higher
Gold continues its tumble
WTI in a consolidative mode
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Currencies Text:
EUR/USD traded lower on Monday and fell below the short-term uptrend line taken from the low of the 13th of March. During the early European morning Tuesday, the rate is trading fractionally above the 1.0800 (S1) support hurdle, where a decisive dip could turn the short-term bias to the downside in my view. Such a break is likely to set the stage for extensions towards our next support obstacle at 1.0700 (S2). Our momentum studies support the notion. The RSI continued lower after finding resistance at its 50 line, while the MACD, already below its trigger line, obtained a negative sign. As for the broader trend, I still see a longer-term downtrend. The pair is forming lower highs and lower lows below both the 50- and the 200- day moving averages. As a result, I would treat the recovery from 1.0460 as a corrective phase of the larger down path.
• Support: 1.0800 (S1), 1.0700 (S2), 1.0610 (S3).
• Resistance: 1.0950 (R1), 1.1045 (R2), 1.1160 (R3).
USD/JPY raced higher yesterday to trade back above the 120.00 (S1) obstacle. After the strong rebound from 118.35, the short-term bias has turned positive in my view. Therefore, I would expect buyers to challenge the resistance of 120.60 (R1) in the near future. A clear move above that line could extend the bullish wave and perhaps target the 121.20 (R2) barrier. The RSI edged up after crossing above its 50 line and is now heading towards its 70 line, while the MACD, already above its trigger, has turned positive and points north. As for the broader trend, the rate is still trading above the upper bound of the triangle that had been containing the price action since November, and is back above both the 50- and the 200-day moving averages. This keeps the overall picture of USD/JPY positive. Nevertheless, I see negative divergence between our daily oscillators and the price action. A break above the 122.00 hurdle is the move that would confirm a forthcoming higher high on the daily chart and perhaps signal the continuation of the large uptrend.
• Support: 120.00 (S1), 119.50 (S2), 119.00 (S3).
• Resistance: 120.60 (R1), 121.20 (R2), 121.60 (R3).
USD/CAD kept rising on Monday and managed to move above the resistance (turned into support) line of 1.2620 (S1). During the European morning Tuesday, the pair is heading towards 1.2750 (R1), where an upside break could target again the critical hurdle of 1.2800 (R2). Our short-term oscillators detect accelerating bullish momentum and amplify the case for further advances. The RSI edged higher and poked its nose above its 70 line, while the MACD continued surging above both its zero and signal lines. Switching to the daily chart, the rate is still trading above the 50- and 200-day moving average. Moreover, the rebound from the 50-day moving average and from the apex of the triangle that had been containing the price action since the beginnings of February gives an extra signal of trend continuation. Therefore, the overall trend of this pair stays to the upside, in my opinion.
• Support: 1.2620 (S1), 1.2535 (S2), 1.2420 (S3).
• Resistance: 1.2750 (R1), 1.2800 (R2), 1.2900 (R3).
Gold continued sliding on Tuesday, falling below the support (now turned into resistance) barrier of 1185 (R1). Taking into account our momentum signs, I would expect the tumble to continue and challenge our next support line at 1175 (S1). The RSI headed south after falling below its 50 line, while the MACD, already below its upside support line and below its trigger line, entered its negative field. As far as the bigger picture is concerned, since the peak at 1307, the price structure has been lower highs and lower lows. The recent declines support the case that the 17th - 26th March recovery was just a corrective move which is probably over now.
• Support: 1175 (S1), 1165 (S2), 1150 (S3).
• Resistance: 1185 (R1), 1200 (R2), 1222 (R3).
WTI moved in a consolidative mode on Monday, staying between the support of 47.60 (S1) and the resistance hurdle of 48.70 (R1). I hold the view that the outlook on the 1-hour chart is negative, and I would expect the bears to drive the battle below the 47.60 (S1) line and target the next obstacle of 47.00 (S2). Our hourly momentum studies corroborate my view. The 14-hour RSI hit resistance near its 50 line and turned down, while the hourly MACD, already negative, shows signs of bottoming and could move below its trigger any time soon. On the daily chart, WTI is trading well below the 200-day moving average and is now back below the 50-day one. This keeps the longer-term downtrend still intact. Nevertheless, there is positive divergence between the daily oscillators and the price action. Therefore, I would prefer to wait for price and momentum alignment before getting confident again on the larger down path.
• Support: 47.60 (S1), 47.00 (S2), 45.80 (S3).
• Resistance: 48.70 (R1) 49.45 (R2), 50.00 (R3).
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IronFX Daily Commentary | 01/04/15
Language English
USD lower despite more hawkish Fed comments The dollar was largely lower against both the G10 and EM currencies despite more hawkish comments from Fed officials and slightly higher rate expectations. Richmond Fed President Lacker said the Fed should raise rates in June, while Kansas City Fed President George said “the sooner we do it, the better.” These comments are even more specific than Fed Chair Yellen’s recent statement that a rate rise was likely “sometime this year.” Although the Fed funds rate expectations moved up a bit with these comments, the generally weak economic data – a weak Chicago PMI and poor figure on the labor market in the Conference Board consumer confidence survey -- pushed Treasury yields lower and weakened the dollar. It’s hard to tell however whether the move was driven by the data or by the completion of the end-quarter buying that propelled the US currency higher on Monday. Today the market is likely to focus on the ADP report, which should help the dollar to recover its losses if it comes in as expected (see below).
China manufacturing PMI (just barely) back above 50 China’s official manufacturing PMI gained slightly in March to 50.1 from 49.9, beating expectations of a decline to 49.7 as it just barely poked its nose above the 50 boom-or-bust line. At the same time, the final HSBC/Markit PMI for the country was revised up slightly from the preliminary estimate, although it still remains in contractionary territory at 49.6. The figures may indicate some measure of success from the government’s stimulus measures, or perhaps just a rebound in activity after the Chinese New Year holiday. AUD rose sharply on the news but quickly lost all the gains. Nonetheless it remained slightly above yesterday morning’s level vs USD.
Perhaps more important than this monthly figure, China announced that it would insure bank deposits. This is a necessary step on the way to eliminating controls on interest rates and allowing more lenders to fail. While such steps will help to eliminate distortions in the economy and set growth on a more sustainable path in the long run, in the short run they mean more bankruptcies and economic turmoil as interest rates rise and companies surviving on negative real interest rates start having to earn a real return. This transition period towards a more balanced economic model is likely to be negative for AUD, in my view. (FYI iron ore for delivery in China fell further yesterday. It’s down almost 30% just this year. As for New Zealand, it remains to be seen what the impact of the end of EU quotas on milk production will be on the country’s exports to China. The long-standing quotas are being abolished as of today. It’s been reported that EU member states are planning production increases of as much as 20% to boost exports to Asia. This will compete directly with New Zealand. Milk and milk products accounted for 29% of its exports in 2014.
Tankan is disappointing Very disappointing Tankan! The Bank of Japan’s Q1 short-term survey of economic conditions was much weaker than expected. The index for the large manufacturers, the bellwether of the Japanese economy, was unchanged from Q4 and is expected to fall in Q2. Large non-manufacturers did slightly better as did small companies, but again their outlook is for a decline in Q2. A year after the hike in the consumption tax, confidence has yet to recover. Companies are now forecasting a cut in capital spending for the fiscal year, instead of a modest rise as expected. This may have something to do with the fact that they are assuming USD/JPY will average 111.81 in the new fiscal year that starts today. In any event, Japanese stocks fell on the news and USD/JPY moved down with them. The weekly correlation between Japanese stocks and USD/JPY recently hit the highest it’s been since at least 1980. This is somewhat counter-intuitive as a poor tankan figure like this suggests that the Bank of Japan may have to increase stimulus or try to weaken the yen further. I remain bullish on USD/JPY (i.e., bearish on the yen) as I expect the government will redouble its efforts to boost exports.
Today’s highlights: In Europe, we get the manufacturing PMI figures for March 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 54.4 from 54.1.
In the US, the main event will be the ADP employment report for March two days ahead of the nonfarm payroll release. The ADP report is expected to show that the private sector gained more jobs in March than it did in the previous month. Although there is a lot of variation between the ADP and the NFP reports, if the ADP report comes strong, it would suggest that Friday’s nonfarm payroll figure may come in strong as well. This could add to USD strength. The final Markit manufacturing PMI and the ISM manufacturing index both for March are to be released.
From Canada, the RBC Manufacturing PMI for March is expected. The market doesn’t pay that much attention to it and prefers the Ivey manufacturing PMI instead.
As for the speakers, Atlanta Fed President Dennis Lockhart will chair a panel at the Atlanta Fed's financial markets conference with the topic, “Monetary Policy: Will the Traditional Banking Channel Remain Central to Monetary Policy?'' San Francisco Fed President John Williams will participate.
Currency Titles:
EUR/USD falls below 1.0800
GBP/JPY trades within a possible flag
AUD/USD consolidates slightly above 0.7610
Gold trades virtually unchanged
WTI finds support slightly above 47.00
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Currencies Text:
EUR/USD continued falling on Tuesday and managed to break below the support (now turned into resistance) of 1.0800 (R1). Nevertheless the decline was halted marginally above our next support line at 1.0700 (S1), and subsequently the pair rebounded. The rate stays below 1.0800 (R1) and this keeps the short-term bias negative in my view. Today, the US ADP report is expected to show that the private sector gained more jobs in March than February. This could encourage the bears to take advantage of the proximity to the 1.0800 (R1) barrier and pull the trigger for another leg down near 1.0700 (S1). As for the broader trend, I still see a longer-term downtrend. The pair is forming lower highs and lower lows below both the 50- and the 200- day moving averages. As a result, I would treat the recovery from 1.0460 as a corrective phase of the larger down path.
• Support: 1.0700 (S1), 1.0610 (S2), 1.0550 (S3).
• Resistance: 1.0800 (R1), 1.0950 (R2), 1.1045 (R3).
GBP/JPY appears to be trading within a possible rising flag formation. Despite the recent advance, and the rising momentum indicators, a rising flag is usually a bearish pattern. Therefore, I prefer to wait for the rate to break below the lower line of the pattern. A move below the 177.10 (S1) support will confirm the completion of the flag and bring trend resumption. In the case of such a break, I would expect the rate to accelerate lower and perhaps target the strong support zone of 176.00 (S3). As for the bigger picture, the rate is still trading below the 200-day moving average, while a decisive dip below 176.00 (S3) could complete a 5-month failure swing top and perhaps turn the overall outlook negative.
• Support: 177.10 (S1), 176.50 (S2), 176.00 (S3).
• Resistance: 178.35 (R1), 179.25 (R2), 180.00 (R3).
AUD/USD fell below the support (turned into resistance) barrier of 0.7680 (R1) on Monday, and on Tuesday it managed to reach the key support line of 0.7610 (S1). Based on our momentum signs, I would expect the forthcoming wave to be positive, perhaps to test the 0.7680 (R1) line as a resistance this time. The RSI edged higher after exiting its oversold territory, while the MACD shows signs of bottoming and could move above its trigger line any time soon. If the bulls are strong enough to drive AUD/USD above 0.7680 (R1), I would expect the possible rebound to extend towards 0.7760 (R2). Although, I believe we are likely to experience a short-term bounce, I maintain my neutral view as far as the overall outlook is concerned. First, the rate has been oscillating between 0.7610 (S1) and 0.7900 since the end of January. It traded slightly outside of that range for a very short amount of time. Second, AUD/USD is trading near the downtrend line taken from back the peak of the 5th of September, and third, there is still positive divergence between our daily momentum indicators and the price action.
• Support: 0.7610 (S1), 0.7560 (S2), 0.7500 (S3).
• Resistance: 0.7680 (R1), 0.7760 (R2), 0.7800 (R3).
Gold continued sliding on Tuesday, but rebounded from above our support line of 1175 (S1) to trade virtually unchanged. As long as the possibility for a lower high exist, I would consider the short-term outlook to be cautiously negative. I believe that at some point, sellers will seize control and open the way for the 1175 (S1) line. A break below that line could bring more downside extensions perhaps towards 1165 (S2). Taking a look at our momentum studies though, I see a chance that the minor rebound may continue for a while before the bears prevail again. The RSI turned up and now looks ready to challenge its 50 line, while the MACD, although negative, shows signs of bottoming, and could move above its trigger soon. As far as the bigger picture is concerned, since the peak at 1307, the price structure has been lower highs and lower lows. The recent declines from near 1222 (R3) support the case that the 17th - 26th March recovery was just a corrective move that is probably over now.
• Support: 1175 (S1), 1165 (S2), 1150 (S3).
• Resistance: 1190 (R1), 1200 (R2), 1222 (R3).
WTI slid yesterday but failed to touch the 47.00 (S1) barrier and found support slightly above it. However, I hold the view that the outlook on the 1-hour chart is negative, and I still expect a test at the aforementioned level. A clear break below that line could prompt extensions towards 45.80 (S2). Our hourly momentum studies corroborate my view. The 14-hour RSI lies below 50, while the hourly MACD stands below both its zero and signal lines. On the daily chart, WTI is trading well below the 200-day moving average and is now back below the 50-day one. This keeps the longer-term downtrend still intact. Nevertheless, there is still positive divergence between the daily oscillators and the price action. Therefore, I would prefer to wait for price and momentum alignment before getting confident again on the larger down path.
• Support: 47.00 (S1), 45.80 (S2), 45.30 (S3).
• Resistance: 47.80 (R1) 48.70 (R2), 49.45 (R3).
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IronFX Daily Commentary | 02/04/15
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USD mixed despite weaker than expected data The US data yesterday was weak, no doubt about it --- the ADP employment report missed expectations and came in below 200k, while the ISM manufacturing PMI fell 1.4 points to a two-year low after a 6-point drop in the past four months. Benchmark Treasury yields ended down 2- bps while Fed funds futures pricing continued moving more dovish, with greater downside risks to Friday’s employment report now seen.
Nonetheless please note that a weak ADP report does not guarantee a weak employment report; the average absolute difference between the release ADP number and the NFP is 68k. Moreover, the errors are random: they are equally distributed between being higher than and lower than the NFP print. So it would be quite normal for the below-expectations ADP report to coincide with an above-expectations NFP report. The ADP report may be the best predictor we have of the NFP, but that doesn’t mean it’s a good predictor. On the other hand, the very strong run of job gains seen in recent months, averaging 322k over the last four months, is looking increasingly disconnected from many other indications of slower economic growth. Thus it would be reasonable to see some payback in the March report, too.
Against this background, the dollar’s performance was actually quite impressive. It’s opening unchanged to higher against most of the G10 currencies this morning, although lower against the bulk of the EM currencies that we track. The steady performance vs the G10 shows that the end-period buying we saw earlier this week was not just a seasonal pattern.
The big losers were SEK, which has been notoriously weak recently, and AUD, which continues to fall as expectations mount for a rate cut at next week’s Reserve Bank of Australia (RBA) meeting. The market now sees an 84% probability of a cut next week, i.e. it’s almost certain. Today’s Australian data was fairly disappointing; job vacancies rose at a slower pace in February than in January and the trade deficit widened out considerably. Plus iron ore prices continue to decline.
Iron ore prices have been generally falling faster than New Zealand’s milk prices since last August, leading to a lower AUD/NZD. However, milk prices lurched lower at yesterday’s auction, leading to a slight rise in the iron ore/milk price ratio. It wouldn’t be surprising if AUD/NZD moved up temporarily as a result. However, I think the market is more focused on the deteriorating outlook for iron ore than for milk exports. Plus the divergence in monetary policy between the two countries (the market sees an overwhelming 81% probability of no change at the 11 June RBNZ meeting) is supportive of NZD relative to AUD. Therefore I think any strength in the pair is likely to prove temporary. I still see AUD/NZD headed to parity.
Surge in oil prices support oil currencies The dollar did decline vs CHF, CAD and NOK. The latter two were no doubt bolstered by the surge in oil prices on news that US oil output declined in the latest reporting week, the first fall since January. That probably caused some short-covering in this shortened trading week. The number of oil rigs in the US has fallen almost in half since the recent peak in early October. It may be that the drop in oil rigs is finally starting to offset the increase in production from wells that are still pumping. However I still remain bearish on oil. The fact that US Secretary of State Kerry has remained in Lausanne for the talks with Iran even though the deadline is passed demonstrates the US determination to reach some agreement with the country. That could release up to 1mn b/d onto the market. Besides, as I mentioned last week, I expect US oil output to surge in June. Thus I remain bearish vs CAD and NOK. There is a Bank of Canada meeting on April 15th, but the market sees a 74% likelihood of no change in rates.
Today’s highlights: During the European day, the minutes of the ECB Governing Council March monetary policy meeting are released. The accounts will contain an overview of financial market, economic and monetary developments. It will be followed by a summary of the discussion, in an unattributed form, on the economic and monetary analyses and on the monetary policy stance.
In the UK, we get the construction PMI for March. The manufacturing PMI released on Wednesday, although strong, was not strong enough to counter the impact of the Q4 productivity report, which showed that labor productivity fell in Q4. However, a positive surprise in the construction PMI coming after the manufacturing PMI could perhaps overcome the impact of that report and strengthen GBP somewhat.
In the US, initial jobless claims for the week ended March 28 are coming out. Last week’s jobless claims were better than expected, confirming the strong labor market and bolstering the dollar, as “maximum employment” is one of the two key points in the Fed’s mandate. Another strong reading would be consistent with a firming labor market and could overcome any lingering fears from the weak ADP report. We will also get the revised figures for the initial jobless claims for the period from 2010-2014. Trade balance and factory orders, both for February are also due out.
As for the speakers, Fed Chair Janet Yellen and Fed Governor Lael Brainard speak. Yellen will simply be making the opening remarks at a conference on economic mobility, so I do not expect any great revelations from her.
Currency Titles:
EUR/USD trades in a consolidative manner
EUR/GBP stays within a downside channel
NZD/USD hits support at 0.7390
Gold surges above 1200
WTI flies and hits resistance above 50.00
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EUR/USD traded in a consolidative manner on Wednesday, staying between the support of 1.0700 (S1) and the resistance of 1.0800 (R1). The fact that the rate stays below the 1.0800 (R1) barrier keeps the short-term bias negative in my view, and I still expect the bears to challenge the 1.0700 (S1) line. A break below that support could extend the bearish wave and perhaps target the 1.0610 (S2) line. Nevertheless, bearing in mind our momentum signals, I would stay cautious that an upside bounce could be in the works before the next leg down. The RSI continued higher and is now approaching its 50 line, while the MACD has bottomed and crossed above its trigger line. As for the broader trend, I still see a longer-term downtrend. The pair is forming lower highs and lower lows below both the 50- and the 200- day moving averages. As a result, I would treat the recovery from 1.0460 as a corrective phase of the larger down path.
• Support: 1.0700 (S1), 1.0610 (S2), 1.0550 (S3).
• Resistance: 1.0800 (R1), 1.0950 (R2), 1.1045 (R3).
EUR/GBP rebounded from near our support line of 0.7230 (S1), but the bounce was stopped at the upper boundary of the near-term black downside channel. My opinion is that as long as the rate is trading within that channel, the short-term outlook stays negative. A clear break below 0.7230 (S1) would confirm a forthcoming lower low on the 4-hour chart and perhaps pave the way for our next support at 0.7160 (S2). Our daily oscillators reveal negative momentum and support the continuation of the new-born short-term downtrend. The 14-day RSI fell below its 50 line, while the MACD, already negative, shows signs of topping. The broader trend is negative as well. After the downside exit of the triangle pattern on the 18th of December, the price structure has been lower peaks and lower troughs below both the 50- and the 200-day moving averages. The recent decline came after EUR/GBP hit resistance at the 50-day moving average on the 26th of March, and this supports my stance to treat the recovery started on the 11th of March as a corrective move of the larger negative path.
• Support: 0.7230 (S1), 0.7160 (S2), 0.7100 (S3).
• Resistance: 0.7340 (R1), 0.7385 (R2), 0.7455 (R3).
NZD/USD moved somewhat higher after hitting support at 0.7390 (S1) and today during the early European morning is heading towards the resistance of 0.7480 (R1). Based on our momentum studies, I would expect the forthcoming wave to be positive. The RSI hit resistance at its 30 line and edged higher, while the MACD has bottomed and poked its noes above its trigger line. If the bulls manage to drive the battle above 0.7480 (R1), I would expect them to trigger extensions towards our next resistance at 0.7550 (R2). In the bigger picture, I don’t see a clear trending structure. There is also positive divergence between our daily momentum studies and the price action. On the 3rd of February and the 11th of March, NZD/USD printed two lows at the same about level. However, our oscillators printed two higher lows back then. Having all these in mind, I prefer to wait for a while, before getting confident on the next directional move of this pair.
• Support: 0.7390 (S1), 0.7270 (S2), 0.7185 (S3).
• Resistance: 0.7480 (R1), 0.7550 (R2), 0.7660 (R3).
Gold rallied on Wednesday after finding support at 1180 (S3), near the 50% retracement level of the 17th – 26th of March up leg, and traded back above the round figure of 1200 (S1). The likelihood for a lower high still exists, but now there is a possibility for the completion of an inverted head and shoulders formation if the 1220 area is violated. For those reasons I would prefer to switch my stance to neutral and wait for clearer directional signals. On the daily chart, the rebound at 1180 (S3) printed a higher low, while our daily oscillators support further advances. The 14-day RSI stands above its 50 line, while the daily MACD, already above its trigger, appears ready to obtain a positive sign. These signs give me extra reasons to take the sidelines for now.
• Support: 1200 (S1), 1190 (S2), 1180 (S3).
• Resistance: 1220 (R1), 1235 (R2), 1245 (R3).
WTI shot up yesterday and managed to trade above 50.00 for a while. Nevertheless, it found resistance near 50.30 (R1), which stands close to the 61.8% retracement level of the 26th of March - 1st of April decline. The rally changed the short-term outlook from the downside to the upside in my view, as it printed a higher high on the 1-hour chart. A clear break above 50.30 (R1) would confirm my stance and perhaps target our next resistance at 51.00 (R2). Our hourly momentum studies though show that a further retreat could be on the cards before the next leg up. The RSI exited its overbought territory and stands slightly below it, while the MACD has topped and could move below its trigger any time soon. On the daily chart, WTI is trading below both the 50- and the 200-day moving averages. Nevertheless, there is still positive divergence between the daily oscillators and the price action. Therefore, I would prefer to wait for price and momentum alignment before getting confident again on the larger down path.
• Support: 49.45 (S1), 48.70 (S2), 47.80 (S3).
• Resistance: 50.30 (R1) 51.00 (R2), 51.65 (R3).
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IronFX Daily Commentary | 03/04/15
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Employment situation continues to improve Yesterday’s jobless claims were better than expected at 268k – the news reports say they were the second-lowest in 15 years. In fact they’re even better than that, because 15 years ago, there were 36.7mn fewer people living in the US and 14.3mn fewer people working. If we adjust for the change in the labor force, the initial jobless claims are the lowest on record (= back to 1967). Continuing claims are not quite there yet, but almost.
Nonetheless, the dollar weakened as traders braced themselves for a possible nonfarm payroll figure of less than 200k. Remember that the March NFP survey was taken on the week of March 14th, whereas yesterday’s figures refer to the week of March 28th, two weeks later. Jobless claims the week of the 14th were higher (293k), perhaps as a result of bad weather, which may be more relevant for today’s NFP figure. The market consensus from analysts for the NFP is 245k (see below), but many investors see the risk on the downside owing to mean reversion after a string of exceptionally strong numbers (average for the last four months is 322k). The last below-200k number was in August last year, but that got revised up to 213k. The last final number below 200k was in February 2014. Nonetheless, US bond yields moved higher as the good figure encouraged some profit-taking on bonds.
Don’t place too much importance on today’s figure The improvement in the jobless claims figure suggests to me that if the NFP do disappoint, investors are likely to blame it on the unusually bad weather. Nonetheless there could be a bigger-than-usual move in EUR/USD on a disappointing number because the usual sources of EUR supply – European market participants – will be out of the market for the Good Friday holiday. Remember how EUR/USD jumped during Fed Chair Janet Yellen’s press conference following the recent FOMC meeting, which took place after European markets had closed for the day. However, I would expect profit-taking and new short EUR/USD positions to be established rather quickly as many participants are likely to attribute any worse-than-expected result to the weather and assume that the April figures will resume showing an improvement. In any event, I would expect that the market is positioned for a weak number, so the pain trade – the big shock to the market – would be a higher-than-expected figure.
Brent plunges on Iran agreement Oil was down sharply, particularly Brent, after Iran and the world powers agreed on the main outlines of an accord that includes a timetable for lifting sanctions. Iran currently exports around 1mn b/d of oil but used to export 2.5mn b/d before sanctions began, meaning it could probably increase exports by over 1mn b/d. Of course the agreement is by no means a done deal; the two sides have until the end of June to work out the details, which probably will not be easy. Until then no additional Iranian oil will flow into the market. If they do reach agreement then, the additional Iranian oil would arrive just as the increased flow from North Dakota floods into a market where storage is filled up – a disaster-in-waiting.
CAD and NOK were relatively unaffected though as both gained vs USD. NOK seems to be the currency that is tracking oil prices most closely recently; I would expect it to weaken today as a result of the agreement.
China’s final HSBC services PMI for March was unchanged from the initial estimate of 51.8 even though the services sector PMI was revised up a bit. Nonetheless this shows the economy still expanding and lessens the need for further easing measures from the PBoC.
Today’s highlights: We have no major events or releases scheduled during the European session.
In the US, its nonfarm payrolls day! The March labor report will have a greater market significance than usual after Fed Chair Janet Yellen placed the importance of labor market strength over short-term inflationary expectations. Investors are likely to assume that a June rate hike could materialize if the next two NFPs come in strong. The market consensus is for an increase in payrolls of 245k, down from 295k in February. Even though the expected increase in March seems moderate compared to the astounding increases in the recent months, it would still be a strong figure consistent with a firming labor market. In the meantime, the unemployment rate is forecast to remain unchanged at 5.5%, while the average hourly earnings are expected to accelerate a bit on a mom basis. A robust labor report in line with estimates would keep the Fed on track to raise rates this year, which could boost confidence and strengthen USD.
As for the speakers, Minneapolis Fed President Narayana Kocherlakota and St. Louis Fed President James Bullard both give introductory remarks at two separate conferences. Kocherlakota is a major dove while Bullard is generally thought to be a centrist. It will be particularly useful to hear these two men’s views. If even they look for tightening this year, then it’s pretty much a foregone conclusion (although neither man votes on the FOMC this year).
Currency Titles:
EUR/USD waits for the US employment data
GBP/JPY stays neutral
USD/CAD slides back near 1.2535
Gold consolidates above 1200
WTI pulls back
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EUR/USD raced higher on Thursday, breaking above the resistance (now turned into support) line of 1.0800 (S1), but the advance was halted below our next resistance. Despite yesterday’s advance, the possibility for a lower high still exists. Today we get the US employment report for March. A strong report could give sellers a reason to take advantage of yesterday’s climb and shoot the rate down, perhaps even back below the 1.0800 (S1) barrier. The RSI edged above its 50 line, while the MACD, already above its trigger, obtained a positive sign and confirmed Thursday’s positive momentum. In any case, I still believe that the overall trend is negative. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. I would treat 13th – 26th of March recovery as a corrective move and I would expect the bears to eventually take control and drive the battle lower.
• Support: 1.0800 (S1), 1.0700 (S2), 1.0610 (S3).
• Resistance: 1.0950 (R1), 1.1045 (R2), 1.1165 (R3).
GBP/JPY continued to trade in a sideways mode between the support line of 176.70 (S1) and the resistance of 178.35 (R2). The trendless mode is reflected on our short-term momentum studies as well. The RSI gyrates around its 50 barrier, while the MACD stands near its zero line and points sideways. However, having in mind that on the daily chart, the rate is still trading below the 200-period moving average, I would expect the forthcoming wave to be negative, perhaps for another test at 176.70 (S1). A break below that line could open the way for our next support at 176.00 (S2). As for the bigger picture, the rate is still trading below the 200-day moving average, while a decisive dip below 176.00 (S2) could complete a 5-month failure swing top and perhaps turn the overall outlook negative.
• Support: 176.70 (S1), 176.00 (S2), 175.50 (S3).
• Resistance: 177.90 (R1), 178.35 (R2), 179.25 (R3).
USD/CAD hit resistance marginally below the 1.2800 critical line and subsequently it started falling. At the European opening today it is trading near the 200-period moving average, slightly above our support line of 1.2535 (S1). In the absence of any clear trending structure on the 4-hour chart, I would switch my stance to neutral now. On the daily chart, the rate is still trading above the 50- and 200-day moving average. The upside exit of the triangle and then the rebound from the 50-periond moving average support trend continuation and keep the overall path positive. However, there is strong negative divergence between our daily oscillators and the price action. This could cause a downside corrective move. On the upside, only a clear close above the strong hurdle of 1.2800 (R3) would signal a forthcoming higher high.
• Support: 1.2535 (S1), 1.2420 (S2), 1.2370 (S3).
• Resistance: 1.2655 (R1), 1.2750 (R2), 1.2800 (R3).
Gold moved in a consolidative manner on Thursday, staying above the psychological round figure of 1200 (S1), thus the picture is little changed. The likelihood for a lower high still exists, but there is a possibility for the completion of an inverted head and shoulders formation if the 1220 area is violated. For those reasons I would prefer to keep my neutral stance and wait for clearer directional signals. On the daily chart, the rebound at 1180 (S3), which stands near the 50% retracement level of the 17th – 26th of March up leg, printed a higher low, while our daily oscillators support further advances. The 14-day RSI stands above its 50 line, while the daily MACD, already above its trigger, appears ready to obtain a positive sign. These signs give me extra reasons to take the sidelines for now.
• Support: 1200 (S1), 1190 (S2), 1180 (S3).
• Resistance: 1209 (R1), 1220 (R2), 1235 (R3).
WTI traded lower yesterday, tried to close below the support of 48.70 (S1), but failed to do so, and subsequently rebounded somewhat. Yesterday’s move printed a higher low, thus I still see a cautiously positive short-term picture. However, I believe that only a break above the 61.8% retracement level of the 26th of March - 1st of April decline, at 50.30 (R1) would signal further advances, perhaps towards our next resistance at 51.00 (R2). Our hourly studies support the notion. The RSI is back above its 50 line, while the MACD, already positive, shows signs of bottoming and could move above its signal line any time soon. On the daily chart, WTI is trading below both the 50- and the 200-day moving averages. Nevertheless, there is still positive divergence between the daily oscillators and the price action. Therefore, I would prefer to wait for price and momentum to align before getting confident again with regards to the larger down path.
• Support: 48.70 (S1), 47.80 (S2), 47.00 (S3).
• Resistance: 50.30 (R1) 51.00 (R2), 51.65 (R3).
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IronFX Daily Commentary | 06/04/15
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Greece to pay IMF; will it pay its own people? Greek Finance Minister Yanis Varoufakis Sunday confirmed to IMF managing director Christine Lagarde that Athens will meet the EUR 458mn debt repayment to the Fund on April 9. The two officials held talks for about 2 ½ hours in Washington and Lagarde issued a brief statement after the meeting confirming that Greece had no intention of missing Thursday’s repayment. Repaying the IMF first is a huge concession on the part of the Tsipras administration, which came into office with a pledge to renegotiate all such agreements.
The big question for Greece now is, can it meet next week’s bill for salaries and social security payments? Better-than-expected tax collection, postponing some budget expenditures and borrowing from some state entities made it possible for the government to meet all its payments last month. Assuming tax revenues remain on track and more general government entities lend to the state, the country may be able to meet its obligations to creditors this month too, totaling almost EUR1bn. It will face another big hurdle in May, when it has to repay a total of EUR 963mn to the IMF.
The problem is that these payments, combined with continuing deposit outflows from local banks, have tightened credit conditions and may send the economy back into recession. Real GDP contracted in Q4 2014 and may well have contracted again in Q1 2015. The manufacturing PMI has been below 50 since last September. It’s going to be hard for the Greek government to raise more in taxes from an economy in recession. Against that pessimistic background, the market will be waiting to hear what comes from Tsipras’ planned meeting with Russian President Vladimir Putin during a visit to Moscow on April 8-9. I expect that given Russia’s own financial problems, Tsipras is likely to get no more than tea and sympathy. In any event, the Greek drama should continue to fascinate the markets and hold out the possibility of a crisis. But so far, the Greek government seems to be favoring its creditors over its voters, which should keep the markets happy.
US employment report: weak, weak, weak Friday’s employment report was weak, no doubt about it. Many observers had wondered how the US economy could generate such strong employment growth when other economic indicators were relatively weak, and the answer is, it can’t. The weather swung from a positive in February to a negative in March while the underlying pace of job gains also appears to have slowed notably. The average workweek also fell. The unemployment rate declined slightly but for the wrong reasons: the participation rate declined and the household survey employment report was once again quite soft. The only good news in the report was that earnings were a bit firmer. The market had already been discounting a slower pace of tightening, but nonetheless Fed funds futures jumped, pushing expected rates at the long end down 10 bps. The expected Fed funds rate for end -2017 has now fallen by 58 bps from the peak on 6 March to only 1.485% and the market has pushed out the time of the expected first rate hike to October (or March of next year, depending on whether the first move will be to push the rate up to the top of its current range of 0-25 bps or to reset it entirely to 50 bps).
It’s no surprise then that the dollar was weaker this morning against all the major currencies and almost all the EM currencies that we track. The usual pattern though seems to be a big reaction on payroll Friday and some reaction in the opposite direction the following Monday, when investors look at the rates and reason that they’ve gone too far. Today may be different in that a lot of Europeans didn’t get a chance to participate in the market on Friday. Still, they may decide to take advantage of the higher EUR and sell. It’s notable that the pair was once again unable to remain over the 1.10 level. I see a small dollar rebound this morning.
Today’s highlights: Today is a relatively light day with no major indicators during the European session.
In the US, we get the labor market conditions index for March. This is a monthly index that draws on a range of data to produce a single measure to gauge whether the labor market is on the whole improving. Following the weak labor report on Friday, a strong LMCI index will probably not be enough to reverse the short-term negative sentiment towards USD. ISM non-manufacturing PMI and Markit service-sector PMI both for March are also coming out.
From Canada, Ivey PMI for March is to be released. The RBC manufacturing PMI released on Wednesday rose a bit, but stayed below the 50 level that divides contraction from expansion. Nevertheless, increase in the RBC figure doesn’t necessarily imply a rise in the Ivey figure, which is more closely watched by the market. Therefore, a failure to break above the 50 level could weaken CAD somewhat.
New York Fed President William C. Dudley will speak on the national and regional economies. Dudley is known to be dovish. In late February he said he thought the risks of lifting rates “a bit early are higher than the risks of lifting off a bit late.” The market will be looking to hear his take on the economy following the much slower-than-expected US employment data for March.
On Tuesday, the spotlight will be on the Reserve Bank of Australia policy meeting. In their last meeting, the RBA surprised the markets and left the official interest rate on hold at 2.25%, despite expectations of a back-to-back rate cut to battle easing inflation. This week, the median forecast by Bloomberg is for the Bank to remain on hold again and instead cut rates at its meeting in May. On the other hand, the implied probability as measured by futures and options shows more than a 75% chance for a rate cut at this meeting. Our view: We expect the RBA to cut rates this time to counter the fall in the price of iron ore in order to boost the economy and prices. If this happens, it would probably put the AUD under selling pressure.
In Europe, we get the final service-sector PMIs for March from the countries we got the manufacturing data for on Wednesday. This could support EUR somewhat.
On Wednesday, the Bank of Japan ends its two-day policy meeting. Market expectations are for no change in policy at this meeting and the focus will most likely be on Governor Haruhiko Kuroda press conference afterwards. At their last meeting, the Bank left its policy unchanged and admitted that CPI inflation “is likely to be about 0% for the time being, due to the effects of the decline in energy prices”. A stance similar to that of their last meeting is likely to have limited impact on USD/JPY.
In the US, Fed releases the minutes from its latest policy meeting, when officials dropped the “patient” phrase from their post-meeting statement. Following Friday’s weak employment data, the market will be particularly keen to learn what the FOMC members were expecting for the economy in Q1 to see if the employment data might have changed their view. We believe that September seems the most likely date for the Fed to start raising rates and the US dollar is expected to regain its glamor, especially as the alternatives within the G10 become less attractive with their easing biases.
On Thursday, the Bank of England meets to decide on its policy rate. There’s little chance of a change, 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 22nd of April.
On Friday, the main event will be Canada’s unemployment rate for March. The forecast is for the unemployment rate to remain unchanged, and the employment to show no change from the month before.
Currency Titles:
EUR/USD above 1.0950
GBP/USD found resistance near 1.4925
USD/JPY trades near 118.80
Gold surges to 1220
WTI still below 50.30
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Currencies Text:
EUR/USD raced higher on Friday following the weak US employment report, breaking above the resistance (now turned into support) line of 1.0950 (S1). The advance was halted few pips below our resistance of 1.1045 (R1) and the black line that acted as a support line during the 13th – 26th of March advance. Despite the disappointing nonfarm payrolls figure, the failure of bulls to push the price above the 1.1045 (R1) resistance level make me believe that the next wave could be to the downside, perhaps for another test of 1.0950 (S1). A break below that line could push the price even lower towards our next support of 1.0865 (S2). Our short-term momentum signs support the notion that the next wave is more likely to be down. The RSI found resistance at its 70 line, while the MACD seems to have topped and is turning down. In the bigger picture, the overall trend is still negative. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages.
• Support: 1.0950 (S1), 1.0865 (S2), 1.0800 (S3).
• Resistance: 1.1045 (R1), 1.1165 (R2), 1.1250 (R3) .
GBP/USD surged on Friday after the disappointing US labor data, breaking above the resistance-turned-into-support line of 1.4870 (S1). The pair found resistance at the 1.4925 (R1) area. I believe that a failure to break that hurdle is likely to push the rate lower, perhaps towards our support line of 1.4870 (S1), However, although I would expect the forthcoming wave to be negative, Cable has been oscillating between the 1.5000 (R2) resistance and 1.4740 (S2) support lines since the 19th of March. Thus, I would maintain the view that the short-term picture is neutral. The trendless outlook is also supported by our near-term momentum indicators as both point sideways. The RSI is just above its 50 line, while the MACD lies slightly above its zero line. As far as the broader trend is concerned, the price structure on the daily chart still suggests a larger downtrend. Therefore, at some point in the not-too-distant future, I would expect the bears to achieve a dip below the 1.4740 (S2) line and perhaps challenge the 1.4690 (S3) barrier, determined by the low of the 19th of March 2015.
• Support: 1.4870 (S1), 1.4740 (S2), 1.4690 (S3).
• Resistance: 1.4925 (R1), 1.5000 (R2), 1.5050 (R3).
USD/JPY fell on Friday to find support around 118.80 (S1). During the early European morning Monday, the pair is trading near that support line. The failure to breach that obstacle increases the probability that the next move is likely to be up. Therefore, I would expect buyers to challenge the resistance of 119.60 (R1) in the near future. A clear move above that line could extend the bullish wave and perhaps target the key psychological line of 120.00 (R2) again. Our short-term momentum indicators support this notion. The RSI edged up after finding support at its 30 line, while the MACD shows signs of bottoming and could turn positive anytime soon.
• Support: 118.80 (S1), 118.60 (S2), 118.30 (S3).
• Resistance: 119.60 (R1), 120.00 (R2), 120.60 (R3).
Gold opened with a gap up on Monday as the London bullion market was closed on Good Friday when the surprisingly low US nonfarm payrolls were released. The precious metal found resistance at the 1220 (R1) level. A break above that level is needed for the advance to continue. The likelihood for a lower high still exists, but an inverted head and shoulders formation could be completed if the 1220 (R1) area is violated. For those reasons I would prefer to keep my neutral stance and wait for clearer directional signals. On the daily chart, our daily oscillators support further advances. The 14-day RSI stands above its 50 line, while the daily MACD, already above its trigger, poked its nose above the zero line. These signs give me extra reasons to take the sidelines for now and wait for a break above the 1220 (R1) level.
• Support: 1209 (S1), 1200 (S2), 1190 (S3).
• Resistance: 1220 (R1), 1235 (R2), 1245 (R3).
WTI continues to trade below the 50.30 (R1) resistance line, which happens to be the 61.8% retracement level of the 26th of March - 1st of April decline. Therefore, I would need a break above that level to signal further advances, perhaps towards our next resistance at 51.00 (R2). Our hourly studies support the notion. The RSI is above its 50 line pointing up, while the MACD, already positive, crossed above its signal line. On the daily chart, WTI is trading below both the 50- and the 200-day moving averages. Nevertheless, there is still positive divergence between the daily oscillators and the price action. Therefore, I would prefer to wait for price and momentum to confirm each other before getting confident again with regards to the larger down path.
• Support: 48.70 (S1), 47.80 (S2), 47.00 (S3).
• Resistance: 50.30 (R1) 51.00 (R2), 51.65 (R3).
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IronFX Daily Commentary | 07/04/15
Language English
Fed officials see economic weakness as only temporary Friday’s weaker-than-expected nonfarm payrolls don’t seem to have changed attitudes at the Fed. NY Fed President William Dudley, a noted dove, Monday said he viewed the figures “as reflecting temporary factors to a significant degree,” namely the unusually harsh winter weather. He of course hedged his comments with the need to monitor developments and said that it “remains uncertain” when the Fed would start lifting rates, “because the future evolution of the economy cannot be fully anticipated.” In other words, the Fed remains data-dependent, which we already knew. Atlanta Fed President Lockhart was somewhat more confident. He agreed with Dudley that Q1 “was anomalous again, just like a year ago,” but said he “would probably be biased toward the July or September dates as opposed to June” for starting the tightening. “I’m not ready yet to conclude a slowdown is underway,” he said.
Reflecting these comments, the longer-dated Fed funds rate expectations moved up by 5 bps, undoing about half of the move that occurred on Friday after the release of the NFP, while 10 year bond yields were up 6 bps, unwinding most of the 7 bps rally that occurred Friday. Clearly the officials are expecting that like last year, a depressed winter will be followed by a more normal spring and that their forecasts will come to pass. The similarity with last year can be seen in the graph of the economic surprise index, which is following last year’s pattern quite closely. The indicator has already started to turn up, suggesting that the worst disappointments may already be behind us. This would allow the Fed to tighten policy earlier than the market currently expects, which is sometime around October or next March, depending on whether they move to 25 bps or 50 bps as their first move. The comments helped to revive interest in the dollar and the US currency rose against almost all its counterparts.
Among the G10, only CAD managed to keep pace with USD’s gains. The Bank of Canada business survey was fairly weak and the Ivey PMI showed further deterioration at 47.9, well below expectations of a slight recovery to 49.9. The index has been below 50 for three months now. I can only assume that CAD remained stable because of the rise in oil prices.
Oil prices rise on Saudi move, inventory report Saudi Aramco raised its prices for crude shipped to Asia after the country’s oil minister said global demand was improving (but lowered its prices for the US, reflecting the glut in the US market). Also, energy information group Genscape released bullish information about inventories at Cushing, Oklahoma – Reuters said the firm estimates Cushing stocks rose by only 169k barrels in the week to April 3, while Dow Jones said the firm was reporting a decline in inventories of 300k. Either way, it’s a far cry from the recent rise of 2mn barrels a week and was therefore quite bullish for oil. Nonetheless, I think the figure represents temporary factors and I would expect to see another large build in inventories in the following week, with a corresponding decline in prices – and in the CAD.
RBA keeps rates steady The Reserve Bank of Australia (RBA) kept rates steady at its meeting Tuesday, in contrast to market (and our) expectations of a cut. They continued to complain about the strength of the AUD and said “further depreciation seems likely, particularly given the significant declines in key commodity prices.” Looking at the prices for iron ore and coal, two of the country’s main exports, we can only agree, although the price of coal does seem to have bottomed (for now). Moreover they continued with their easing bias, saying that “further easing of policy may be appropriate over the period ahead…” While AUD gained on the news that rates were being held steady, I believe this rally may provide an opportunity for going short AUD.
Today’s highlights: During the European day, we get the final service-sector PMIs for March from the countries we got the manufacturing data for on Wednesday. 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 Wednesday increase the likelihood that the service-sector PMIs will be revised as well. This could support EUR somewhat.
In Sweden, industrial production for February is expected to decelerate a bit. This could prove SEK-negative.
In the US, the Job Opening and Labor Turnover Survey (JOLTS) report for February is forecast to show that the number of job openings has increased marginally. The market will also be watching for the “quit rate,” which Fed Chair Janet Yellen singled out as “a barometer of worker confidence in labor market opportunities.” A higher quit rate can be seen as a good sign for the overall economy, as people tend to quit when they are more confident in the labor market.
As for the speakers, Minneapolis Fed President Narayana Kocherlakota speaks. Kocherlakota is a major dove and it will be interesting to see what he says following the weak labor report on Friday. He spoke briefly on Friday but did not mention the economy.
The Bank of Japan started its two-day Policy Board meeting today and will finish tomorrow. Market expectations are for no change in policy at this meeting. Inflation is trending downward, but the Bank already admitted at its last meeting that CPI inflation “is likely to be about 0% for the time being, due to the effects of the decline in energy prices”. Therefore, the focus will most likely be on Governor Haruhiko Kuroda’s press conference afterwards. One point of interest will be if he says anything about liquidity in the JGB market. FX market participants are waiting for the April 30th meeting, when the BoJ will release its semi-annual Outlook for Economic Activity and Prices. If the inflation forecast is revised sharply downward or fears are expressed about overseas economies, Gov. Kuroda could propose further easing measures then.
Currency Titles:
EUR/USD below 1.0950
GBP/USD found support around 1.4870
USD/JPY surges towards 119.60
Gold finds strong resistance at 1220
WTI surged violating three resistance lines in a row
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EUR/USD consolidated during the most of the European trading session Monday, as the major European markets were closed due to holidays. Tuesday’s market is likely to be more active as European investors reassess the initial reaction to the weak US employment report. EUR/USD declined late in the US trading session, breaking below our support (now turned into resistance) level of 1.0950 (R1). At the time of writing, the pair is testing that level and a break above that hurdle is likely to push the rate towards 1.1045 (R2) again. However, looking at our short-term momentum signs, the RSI declined after finding resistance at its 70 line, while the MACD has topped, crossed its trigger line and is pointing down. These indicators amplify the case that the next wave could be to the downside, perhaps for a test of 1.0865 (S1) support line. On the daily chart, the overall trend is still to the downside. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages.
• Support: 1.0865 (S1), 1.0800 (S2), 1.0710 (S3).
• Resistance: 1.0950 (R1), 1.1045 (R2), 1.1165 (R3) .
GBP/USD plunged on Monday after failing to break the 1.4950 (R1) resistance line. The pair fell to find support at our 1.4870 (S1) level and the 80-period exponential moving average that has acted as a good resistance to the recent price action. I believe that a break of that obstacle is likely to push the rate lower, perhaps towards our next support line of 1.4800 (S2), Nevertheless, although I would expect the forthcoming wave to be negative, Cable has been oscillating between the 1.5000 (R2) resistance and 1.4740 (S3) support lines since the 19th of March. Therefore, a beak in either direction is needed to determine the near-term bias as it will print a higher high or lower low on the daily chart. Our near-term momentum indicators continue to support the sideway path, as both point sideways. As for the bigger picture, the price structure on the daily chart still suggests a larger downtrend. Therefore, at some point in the not-too-distant future, I would expect the bears to achieve a dip below the 1.4740 (S3) support line.
• Support: 1.4870 (S1), 1.4800 (S2), 1.4740 (S3).
• Resistance: 1.4950 (R1), 1.5000 (R2), 1.5050 (R3).
USD/JPY surged on Monday after failing to break below the 118.80 (S1) support level. During the early European morning Tuesday, the pair is trading near that resistance line. A break of that level is needed to extend the bullish wave and challenge our next resistance and key psychological line of 120.00 (R2). Our short-term momentum indicators support this notion. The RSI now above its 50 line points higher, while the MACD has bottomed, crossed its trigger line and could turn positive anytime soon.
• Support: 118.80 (S1), 118.60 (S2), 118.30 (S3).
• Resistance: 119.60 (R1), 120.00 (R2), 120.60 (R3).
Gold fell on Monday after finding resistance at the 1220 (R1) level. A break above that level was needed for the advance to continue, and the failure to break it increased the likelihood for further declines. At the time of writing, an initial test of the 1209 (S1) support area is already looming and if the bears prove strong enough, the precious metal could decline further towards the 1200 (S2) round figure. Looking at our short-term momentum signals, the RSI found resistance near its 70 line and declined, while the MACD has topped and seems ready to cross its signal line. These signs support the notion for another test of the 1200 (S2) support level. On the daily chart however the possibility for a lower high still exists, but an inverted head and shoulders formation could be completed if the 1220 (R1) area is breached. Also, our daily oscillators support further advances. The 14-day RSI stands above its 50 line, while the daily MACD, stands above its trigger and zero lines. Therefore, I would need a break above the 1220 (R1) level to trust any further advances.
• Support: 1209 (S1), 1200 (S2), 1190 (S3).
• Resistance: 1220 (R1), 1235 (R2), 1245 (R3).
WTI surged on Monday violating three resistance lines in a row. The move was halted near the 52.20 (R1) resistance line, which happens to be just below the 100% extension level of the 26th of March - 1st of April decline. Therefore, I would need a break above that level to signal further advances, perhaps towards our next resistance level of 54.20 (R2). Our 4-hour studies support a halt in the move before the bulls prevail again. The RSI found resistance at its 70 line and is pointing down, while the MACD stands above its zero and signal line and points sideways. On the daily chart, the surge on Monday pushed WTI above its 50-day moving average and turned the near-term bias slightly to positive. Nevertheless, a clear break of 52.20 (R1) is needed to support further advances, in my view.
• Support: 49.85 (S1), 48.60 (S2), 47.00 (S3).
• Resistance: 52.20 (R1) 54.20 (R2), 55.00 (R3).
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IronFX Daily Commentary | 08/04/15
Language English
NFP? What NFP? The effect of the much worse-than-expected nonfarm payrolls on the dollar is now almost totally gone, at least with regards to the G10 currencies. USD is now higher than it was at the Friday opening in Europe against NOK, CHF, JPY, EUR and SEK, while lower vs only AUD, CAD and NZD. AUD is due largely to the RBA and CAD is due to the oil price, so neither have anything to do with Fed policy. Fed funds rate expectations are now down only 3 or 4 bps from the pre-NFP levels, while 10-year yields are down 3 bps. It’s almost as if the NFP never happened. Apparently, investors listened to what the FOMC members said (except for Mr. Kocherlakota – see below) and are expecting the Fed to look through this period of weakness and begin tightening rates around mid-year anyway. That means the dollar rally can continue.
JOLTS report shows labor market improving The Job Opening and Labor Turnover Survey (JOLTS) showed job openings rising to a 14-year high. But the pace of hiring remained steady, which implies that employers are having a hard time finding workers. The hiring rate was unchanged and the quit rate fell 10 bps. These are key indicators of labor market conditions for Fed Chair Janet Yellen as they are closely correlated with employment costs, and she wants to see workers benefitting from the upturn before she starts hiking rates. These details should have depressed Fed funds rate expectations slightly but didn't. Apparently the markets were more encouraged by the good headline figure on job openings, plus the solid rise in consumer credit in February and the improvement in IBD/TIPP economic optimism. This is further evidence of the turnaround from Friday’s employment shock and demonstrates why USD can keep rising.
Kocherlakota still the uber-dove Minneapolis Fed President Narayana Kocherlakota maintained his position as the most dovish person on the FOMC. Contrary to what we’ve heard from all the other FOMC members who’ve spoken recently, he said he thought the Fed shouldn’t start raising rates “until the second half of 2016.” That’s 2016, not 2015. Kocherlakota does not vote on the FOMC this year and will retire when his term ends in February next year, so his comments are of interest only insofar as they represent one extreme of the debate.
Bank of Japan stands pat The Bank of Japan kept its monetary policy stance unchanged, as was unanimously expected. Similar to the previous meeting, there were few changes to the statement and the Board members simply repeated that they will continue their easing program, aiming to achieve the 2% inflation target. About the only change was that they lowered their estimate of inflation to “about 0 percent” from “in the range of 0.0-0.5 percent.” They still see inflation at around 0 percent “for the time being” but as usual add that “inflation expectations appear to be rising on the whole from a somewhat longer-term perspective.” Perhaps they are referring to firms’ forecasts in the tankan, where the latest forecast for inflation in five years edged up by 10 bps to 2.2%. However, the forecasts in the tankan for inflation in one year fell. Market forecasts for near-term inflation are declining as well, as the graph shows. That makes it more likely that they will eventually have to do yet another increase in their QQE program, which should be the occasion for another leg up in USD/JPY, in my view. FX market participants are waiting for the April 30th meeting, when the BoJ will release its semi-annual Outlook for Economic Activity and Prices. If the inflation forecast is revised sharply downward or fears are expressed about overseas economies, Gov. Kuroda could propose further easing measures then.
Oil prices pare gains Lots of debate around tonight’s US Energy Information Agency (EIA) oil inventory data. Monday there was talk that it would show a decline in inventories, but the American Petroleum Institute data out Tuesday reportedly showed a big increase, which brought the price down somewhat.
Today’s highlights: During the European day, Eurozone retail sales for February are the only indicator remaining. German factory orders for February fell 0.9% mom, a far cry from the 1.5% rise that was expected. This is an unusually weak number for Germany, where the economic data has been surprising on the upside recently. EUR/USD edged down around 10 pips on the news.
Greece will auction off EUR 875mn in six-month T-bills. The money is needed to refinance a EUR 1.4bn issue that matures next Tuesday, Apr. 14th, not to mention a EUR 194mn bond coupon payment and EUR 1bn T-bill maturity on Friday, April 17th. This is besides the EUR 450mn due to the IMF on Thursday that Greece has to pay. Greece is rapidly running out of money and therefore running out of time to reach some agreement with its creditors. The problem seems to be with the left wing of the SYRIZA coalition, which resists going back on its campaign promise to renegotiate the terms of the bailout. On the contrary, it is now arguing that Germany owes it an incredible EUR 278.7bn in war reparations, a tactic that is not likely to win Greece any support from the voting public in Germany. The country basically has until April 24th, when the Eurozone finance ministers meet, to come up with a proposal that they will accept. Otherwise a default seems inevitable.
In the US, the minutes of the March FOMC meeting are to be released, when officials removed “patient” phrase from their statement. This suggested that the period of zero interest rate is coming to an end. But the mostly dovish statement overshadowed the removal of the word as it stated specifically that an increase in the range for the Fed funds rate remains unlikely at the April FOMC meeting. In other words, the Committee removed its forward guidance that depends on the date and replaced it with guidance that depends on the data. At the same time, they lowered their economic forecasts significantly, including the forecasts for the Fed funds rate. It will be interesting to see the discussions that led to these significant revisions. We believe that September seems the most likely date for the Fed to start raising rates and the US dollar is expected to regain its strength, especially as the alternatives within the G10 become less attractive with their easing biases.
We have two Fed speakers on Wednesday’s agenda: New York Fed President William C. Dudley (again – he spoke on Monday) and Fed Governor Jerome Powell both speak on monetary policy.
US earnings season starts today with Alcoa announcing after the NY close, as usual. We are likely to get a number of comments about how the strength of the dollar is impacting earnings. Nonetheless, remember that the US economy relies very little on exports. Exports of goods and services account for only 13.5% of GDP, the lowest of any of the G10 countries and in fact one of the lowest ratios in the world (the IMF database gives only nine countries with lower ratios, including Afghanistan, Burundi and Sudan). The problem for the major companies is probably the value of their overseas earnings translated back into USD, which may affect dividends but does not directly affect US jobs.
Currency Titles:
EUR/USD found support at 1.0800
GBP/USD just above 1.4800
USD/JPY found resistance near 120.30
Gold in a consolidative mood
WTI obtains a slightly positive bias
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EUR/USD fell on Tuesday breaking below 1.0865 and giving back all the Friday’s gains following the weak US employment report. The decline was halted at our next support line of 1.0800 (S1). Ahead of the Fed March meeting minutes however I would prefer to take the sidelines for now as a possible dovish minutes could push the rate up towards the 1.0950 (R1) resistance level. On the other hand, if the minutes reassure investors that the Fed is still on track to raise rates faster than market is expecting, this could strengthen the dollar and push the rate towards the 1.0710 (S2) support line. Another reason to keep to the sidelines is that the pair is trading just above the black uptrend line taken from the lows of 13th of March, and a break of that line is needed for another leg down. On the daily chart, the overall trend is still to the downside. EUR/USD is printing lower highs and lower lows below both the 50- and the 200-day moving averages.
• Support: 1.0800 (S1), 1.0710 (S2), 1.0650 (S3).
• Resistance: 1.0950 (R1), 1.1045 (R2), 1.1165 (R3) .
GBP/USD continued to decline on Tuesday and fell near the same levels as before the US nonfarm payrolls were released. The pair found support at our 1.4800 (S1) level and a break of that obstacle is necessary to trigger further declines, perhaps towards our next support of 1.4740 (S2). The tone of the FOMC March meeting minutes to be released later in the day is likely to determine the near-term bias of the pair. I would be cautious about a possible bounce if the minutes are somewhat dovish. However, Cable has been oscillating between the 1.5000 (R3) resistance and 1.4740 (S2) support lines since the 19th of March, therefore any bounce is likely to remain limited below the 1.5000 (R3) resistance level, in my view. A break in either direction of the aforementioned levels is needed to determine the near-term bias as it will print a higher high or lower low on the daily chart.
• Support: 1.4800 (S1), 1.4740 (S2), 1.4680 (S3).
• Resistance: 1.4890 (R1), 1.4950 (R2), 1.5000 (R3).
USD/JPY declined during the early European hours after finding resistance near the 120.30 (R1) area. The decline is likely to continue, perhaps towards our 119.60 (S1) support level. A break of that hurdle is likely to push the rate even lower, towards our next support of 119.10 (S2). Our short-term momentum signs support this notion. The RSI found resistance at its 70 line and is now just above its 50 level pointing down, while the MACD has topped and is also pointing down.
• Support: 119.60 (S1), 119.10 (S2), 118.80 (S3).
• Resistance: 120.30 (R1), 120.70 (R2), 121.20 (R3).
Gold traded very stable on Tuesday remaining marginally below our previous 1209 support line, which I lowered slightly to 1208 (S1). I don’t trust the moderate break of the 1209 level as a clear signal for further bearish extensions. I would wait for a clear breach of 1208 (S1) to support further declines. A break of the aforementioned territory could push the precious metal towards the 1200 (S2) round figure and the black uptrend line taken from the lows of 17th of March. Our short-term momentum indicators are both pointing sideways, with the RSI just above its 50 line and the MACD in between its trigger and zero lines, reflecting the restrained mood of investors. In the bigger picture however the possibility of an inverted head and shoulders formation could be completed if the 1220 (R1) area is breached. Therefore I would need a break above the 1220 (R1) level to trust any further advances.
• Support: 1208 (S1), 1200 (S2), 1190 (S3).
• Resistance: 1220 (R1), 1235 (R2), 1245 (R3).
WTI advanced on Tuesday breaking our resistance-turned-into-support of 52.20 (S1). The move was halted at our next resistance line of 54.20 (R1). The break of the 52.20 (S1) level also signalled the break of the neckline of an inverted head and shoulders formation and could suggest further advances in the following days. Nevertheless, I would wait for a break of the well-tested 54.20 (R1) resistance area to trust further bullish extensions and the confirmation of the inverted head and shoulders formation. In such event, we could see WTI near 60 again. On the daily chart, WTI is above its 50-day moving average, which also has turned the near-term bias slightly to positive. Nevertheless, a clear break of 54.20 (R1) is needed to support further advances, in my view.
• Support: 52.20 (S1), 49.85 (S2), 48.60 (S3).
• Resistance: 54.20 (R1), 55.00 (R2), 56.50 (R3).
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Great analysis thank you for posting !
IronFX Daily Commentary | 09/04/15
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USD rally to continue as FOMC minutes show Committee split on June rate hike The minutes of the recent FOMC meeting were considered modestly hawkish. The headline that grabbed everyone’s attention was that “several” FOMC participants thought it would be appropriate to start raising rates in June, but investors later reasoned that the “several” were probably the usual hawkish regional Presidents who have been pushing for some time for the Fed to start tightening as soon as possible. These people do not necessarily represent a consensus on the Committee. For example, Richmond Fed President Lacker, St. Louis Fed President Bullard and Cleveland Fed President Mester all said recently that they favour a June rate hike, but they have been at one extreme of the Committee’s thinking for some time and certainly are now when compared to what Chair Yellen said two weeks ago and FOMC Vice Chairman Dudley said in two appearances this week. For example, Gov. Powell said yesterday that the risk of hiking too early was greater than the risk of waiting too long and that while he expects a first rate increase later this year, the rise in rates thereafter can be “gradual,” something that Yellen and Dudley have emphasized as well.
The two views are not necessarily contradictory The Fed could raise rates in June, but then hold steady for some time before hiking again, rather than raising rates by 25 bps at each meeting. That would satisfy both camps. I expect though that we would have to see a substantial upward revision to the March nonfarm payrolls and continued strong growth in jobs in order to see a June rate hike. September seems more likely to me.
The minutes also showed that more than half the members of the Committee have lowered their estimate for how low unemployment can fall before it causes wage inflation, meaning that their estimate of where the Fed’s mandate for “maximum employment” is has shifted down. That has important consequences for the pace of tightening. As a result, the Fed funds rate expectations rose only a modest 1 bps. Still, it was enough to support the dollar and the US currency gained against most of its G10 counterparts. I expect USD to gain further as monetary policy divergence continues to be a major theme in the FX market. EM was more resilient however and almost all of the EM currencies that we track firmed as market participants now expect the shock to EM countries from higher US rates may be less than they had anticipated.
AUD, NZD and GBP rose vs USD. GBP has been boosted by Shell’s planned purchase of BG Group. The market may be getting used to the political story; a YouGov poll showing Labour ahead by 1 bp with 35% and Conservatives at 34% with other parties with smaller shares had no impact. Still, I expect the uncertainty around the elections to exert continuing downward pressure on the pound as the May 7th election draws nearer.
Oil collapses after US inventories rise more than expected On Monday, the story was that inventories at Cushing, Oklahoma may have fallen in the latest week. On Tuesday, after the API data, it appears that they rose. On Wednesday, the official US Energy Information Agency data was released, showing an enormous 10.9mn barrel increase in inventories, the biggest increase since 2001. Inventories at Cushing rose only 1.2mn barrels, well below the 2.1mn barrel weekly average so far this year, but so what? They’re still on their way to filling up the town’s total storage by the middle of the year. That is likely to weigh on the commodity currencies, particularly CAD, today.
Greek T-bill auction has odd results Greece managed to sell all the T-bills on offer yesterday. The results were quite strange when compared with other countries’ bond auctions; the bid-to-cover ratio, at 1.3, was exactly the same as in the previous auction, which implies that investors bid for exactly as many bonds this time as last time. A coincidence? Also the bills came at 2.97%, which compares with the existing six-month bill rate of 3.81%. Who would buy new T-bills at almost 100 bps through existing bills? Is there such a shortage of investment opportunities in Greece? Apparently the government refuses to accept bids above 3.0%, and I can only deduce that there is a feeling of “mutual assured destruction” that encourages the buy-side to ensure that the auction is fully underwritten, lest the market panic and prices of their other holdings collapse. Meanwhile, Greek PM Tsipras’ visit to Moscow resulted in the promise of closer ties between the two countries, but no money. The countdown to default continues.
Today’s highlights: German industrial production rose more than expected on a mom basis while the current account balance was a bit lower than expected in February. Nonetheless exports rose more than expected, in contrast to yesterday’s disappointing figures on factory orders. The data suggest that the German economy is still gaining strength. In the UK, the Bank of England meets to decide on its policy rate. There’s little chance of a change, 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 22nd of April. The country’s trade balance is also coming out. Recently, the Bank of England warned that the current account deficit could cause financial markets to turn against the UK economy in times of stress. Since the trade deficit is a large part of the current account deficit, its widening could heighten those concerns and GBP could weaken somewhat.
From the US, initial jobless claims for the week ended April 4 and wholesale inventories for February are due to be released.
Currency Titles:
EUR/USD below 1.0800
GBP/USD just below 1.4890
USD/JPY testing the 120.40 resistance
Gold breaks below 1200
WTI just above 50
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Currencies Text:
EUR/USD bounce a bit on Wednesday after finding support near the 1.0800 level and the black uptrend line taken from the lows of 13th of March. Afterwards, the pair found resistance at the 50-period moving average, and declined following the release of Fed March meeting minutes. Even though the minutes revealed a divergence in views concerning the first rate hike, the fact that several members kept alive the scenario for a rate hike as early as June strengthened USD a bit. EUR/USD fell to trade few pips below the 1.0800 line but I would need a clear break below the support level of 1.0710 (S1) to trust further declines. In the bigger picture, the overall trend is still to the downside. EUR/USD is printing lower highs and lower lows below both the 50- and the 200-day moving averages.
• Support: 1.0710 (S1), 1.0650 (S2), 1.0600 (S3).
• Resistance: 1.0950 (R1), 1.1045 (R2), 1.1165 (R3) .
GBP/USD moved up ahead of the FOMC March minutes release breaking above our 1.4890 (R1) resistance line, but in the event it fell back to trade below that hurdle again. Today, the Bank of England meets to decide on its policy rate. Even though the market reaction should be minimal as usual and no change in policy is expected, it could be enough to push the rate for a test of the 1.4800 (S1). Nevertheless, I repeat that GBP/USD has been oscillating between the 1.5000 (R3) resistance and 1.4740 (S2) support lines since the 19th of March, therefore any move limited within those levels is likely keep the near-term bias neutral, in my view. A break in either direction is needed to determine the near-term bias as it will print a higher high or lower low on the daily chart.
• Support: 1.4800 (S1), 1.4740 (S2), 1.4680 (S3).
• Resistance: 1.4890 (R1), 1.4950 (R2), 1.5000 (R3).
USD/JPY advanced following the slightly hawkish tone from Fed March minutes. During the early European morning it’s testing the 120.40 (R1) resistance hurdle. A break above that level is needed to extend the advance, perhaps for a test of our next resistance line of 120.70 (R2). Our short-term momentum indicators support the notion for further advances. The RSI found support at its 50 line and moved higher, while the MACD, already in positive territory, crossed above its trigger line. On the daily chart the pair is trading above the 50- and 200-day moving averages, keeping the overall uptrend intact.
• Support: 119.60 (S1), 119.10 (S2), 118.80 (S3).
• Resistance: 120.40 (R1), 120.70 (R2), 121.20 (R3).
Gold fell below 1200 on Wednesday but the move was halted near the black uptrend line taken from the lows of 17th of March and the 200-period moving average. A break below the 1196.45 (S1) support line and the black line is likely to trigger further bearish extensions perhaps towards our next support level of 1190 (S2). Our short-term momentum signs support further declines. The RSI broke below the 50 line and is pointing down, while the MACD, already below its trigger line, dipped its toe below the zero. On the daily chart however, the rebound at 1180 (S3), which stands near the 50% retracement level of the 17th – 26th of March up leg, printed a higher low, and the possibility for another higher low still exists, so I would be careful about a possible rebound if the bulls take the reins again.
• Support: 1196.45 (S1), 1190 (S2), 1180 (S3).
• Resistance: 1210 (R1), 1220 (R2), 1235 (R3).
WTI fell below our support-turned-into-resistance level of 52.20 (R1). The move was halted at the 50-period moving average and few cents above our support of 49.85 (S1). I still believe that the next move is likely to be to the upside but I would wait for a break of the well-tested 54.20 (R2) resistance area to trust further bullish extensions. In such event, we could see a confirmation of the inverted head and shoulders formation and WTI could rise near 60 again. On the daily chart, WTI is above its 50-day moving average, which also keeps the near-term bias slightly to positive. Nevertheless, the break of 54.20 (R2) is needed to support further advances, in my view.
• Support: 49.85 (S1), 48.60 (S2), 47.00 (S3).
• Resistance: 52.20 (R1), 54.20 (R2), 55.00 (R3) .
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