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IronFX Daily Commentary 16/02/15
Language English
Greece to dominate the day Today’s market will of course be dominated by developments in Greece. European finance ministers, including of course Greek FM Varoufakis, meet again in Brussels to hash out an agreement. Greek officials talked with the troika on Saturday and EU Commission President Juncker spoke to Greek PM Tsipras on Sunday, but there’s no news about what they decided, if anything. Anti-austerity rallies in support of SYRIZA were held in 20 cities around Europe over the weekend, increasing the pressure on EU politicians to compromise lest they get kicked out of office at the next election. I still expect that they will reach some agreement, although there is of course always some doubt. And even if they don’t, there are questions about when the real deadline is. As long as they’re in the euro, there is hope for some agreement. Nonetheless it was noticeable that the euro (and its shadow, the CHF) was the only G10 currency that isn’t opening higher against the dollar today than it was on Friday morning, despite the better-than-expected Q4 GDP figures announced on Friday. This suggests some measure of risk premium is creeping in. The Eurogroup meeting on Greece isn’t until the evening so I expect trading to be inconclusive until then and swayed by any headlines that emerge.
Japan’s growth disappoints Japan’s preliminary GDP for Q4 rose 2.2% qoq SAAR, a pretty weak result following two consecutive quarters of contraction and well below estimates of +3.7%. On a qoq basis, the rise was +0.6%, of which 0.2 ppt was a rise in inventories and another 0.2 ppts net exports, meaning that the domestic economy only contributed about one-third of the total demand growth – and this coming out of a recession. In the context of such weak growth, the markets will be listening closely to what BoJ Gov. Kuroda has to say on Wednesday following the BoJ meeting (see below). Capacity utilization is not yet back up even to the pre-financial crisis average, and the country was in deflation for 43% of that time. Clearly if he is expecting robust domestic growth to close the output gap and start pushing prices higher, he is going to wait a long time. Capacity utilization still isn’t back up to the level of the 1990sThat’s why I doubt that they are really so concerned about a weak yen and why I think they are likely to pursue that path further.
Today’s highlights: During the European day, the main event of the day will be the decisive Eurogroup meeting on Greek debt.
The Swiss National Bank releases its weekly sight deposit data, which could reveal if the Bank intervened in the FX market in the week ended Feb. 13. Indications of further intervention could weaken CHF somewhat.
Eurozone and Norway’s trade balance for December and January respectively are also coming out.
In the US, the markets are closed due to a national holiday (President’s Day).
We have only one speaker on Monday’s agenda: Riksbank Governor Stefan Ingves.
Rest of the week On Tuesday, the Reserve Bank Australia releases the minutes of its February meeting where it cut its benchmark interest rate by 25 bps. The minutes will probably show that the main reasons behind the rate cut are the low inflation and the rising unemployment. In Europe, the highlight will be the German ZEW survey for February. Both indices are forecast to have risen. This could be the 4th consecutive rise in the indices, adding further evidence to the surprisingly strong Q4 GDP that the German economy is gaining momentum. In the UK, CPI for January is expected to have eased further. This is likely to confirm the comments in Thursday’s inflation report that CPI may drop below zero in the coming months and remain close to zero for much of 2015. In Sweden, we get the CPIF – Riksbank’s favorite inflation gauge -- for January.
On Wednesday, the Bank of Japan holds a policy board meeting. The focus will be on Gov. Kuroda’s speech following the meeting and in particular, whether he comments on the news story that ran last week that BoJ policy makers believe further easing would be “counterproductive” as it could weaken the yen further and damage confidence. From the UK, we get unemployment rate for December and Bank of England February meeting minutes. The minutes may show a similar outlook with the Thursday’s inflation report that if deflation is more persistent than the forecast, the Bank is ready to cut interest rates if necessary or expand the Bank’s stimulus program. In the US, the Fed releases the meeting minutes of its Jan. 27-28 meeting. The statement was slightly more confident on the economy, with “solid job gains” upgraded to “strong job gains.” Any reference to when they may start normalization or even remove the line about being “patient” could boost USD. Wednesday also marks the start of the Lunar New Year in China and several other Asian countries.
On Thursday, the only noteworthy indicator we get is the usual US initial jobless claims.
Friday is PMI day. We get the preliminary Markit manufacturing and service sector PMIs for February from several European countries and the Eurozone as a whole, as well as manufacturing for the US. Also UK retail sales.
Currency Titles:
EUR/USD pauses
GBP/USD breaks above 1.5420
EUR/JPY virtually unchanged
Gold somewhat higher
WTI hits resistance around 53.50
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Currencies Text:
EUR/USD moved in a consolidative manner on Friday, staying above the support barrier of 1.1360 (S1) and the 50-period moving average. I still expect the rate to continue higher and challenge the key resistance hurdle of 1.1540 (R1). Our short-term oscillators support the notion. The RSI turned up after finding support above its 50 line, while the MACD stays above both its zero and signal lines. As far as the broader trend is concerned, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. Therefore, I would still consider any possible upside waves as corrective moves.
• Support: 1.1360 (S1), 1.1260 (S2), 1.1100 (S3).
• Resistance: 1.1540 (R1), 1.1650 (R2), 1.1730 (R3).
GBP/USD remained stuck below the 1.5420 barrier on Friday, but today during the Asian morning, it managed to edge above it. The short-term bias remains positive in my view, and I would now expect the bulls to set the stage for extensions towards the psychological obstacle of 1.5500 (R1). As for the broader trend, as long as Cable is trading below the 80-day exponential moving average, I would consider the overall downtrend to be intact and I would see the recent advance as a corrective phase, at least for now. It is worth noting that currently the 80-day EMA coincides with the 1.5500 (R1) psychological area. As a result, only a clear close above that zone could have larger bullish implications, and make me argue for a possible trend reversal.
• Support: 1.5420 (S1), 1.5350 (S2), 1.5300 (S3).
• Resistance: 1.5500 (R1), 1.5590 (R2), 1.5675 (R3).
EUR/JPY traded virtually unchanged on Friday, staying near the 135.20 (S1) line and the 50-period moving average. Given that the rate is still within a possible wedge formation I would prefer to adopt a neutral stance as far as the short-term picture is concerned and wait for the break out of the pattern. On the daily chart, we see that the strong recovery from 130.00 remained limited near the 136.70 (R1) zone, which stands close to the 38.2% retracement level of the 29th of December – 26th of January plunge. Hence, I would still see that recovery as a corrective phase, at least for now.
• Support: 135.20 (S1), 134.15 (S2), 132.30 (S3).
• Resistance: 136.70 (R1), 137.65 (R2), 139.35 (R3).
Gold continued moving higher on Friday, after finding support near the 1222 (S1) barrier, which lies fractionally close to the 61.8% retracement level of the 2nd – 22nd of January advance, slightly above the neckline of the inverted head and shoulders formation seen on the daily chart and completed on the 12th of January. Although the price structure on the 4-hour chart still suggests a short-term downtrend, taking a look at our short-term oscillators, I would stay careful that the rebound may continue and perhaps challenge the 1245 (R1) area. The RSI moved higher and now lies near its 50 line, while the MACD, although negative, raced higher after crossing above its trigger. In the bigger picture, there is still the possibility for further extensions of the rebound and a higher low near the neckline of the pattern. Thus, I would still treat the decline from 1305 as a corrective phase.
• Support: 1222 (S1), 1205(S2), 1185 (S3).
• Resistance: 1245 (R1), 1255 (R2), 1275 (R3).
WTI moved higher on Friday, but the advance was stopped around 53.50 (R1). The price is still trading within a short-term upside channel, but given that there is negative divergence between our momentum studies and the price action, I would prefer to sit on the side lines for now. A clear move below the 52.00 (S1) support line would confirm the weakness detected by the divergence and could prompt extensions towards the 51.00 (S2) zone. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Nevertheless, bearing in mind that the 14-day RSI rebounded from near its 50 line and stayed within its bullish field, while the daily MACD poked its nose above its zero line, I would prefer stay flat as far as the overall picture is concerned as well.
• Support: 52.00 (S1), 51.00 (S2), 49.65 (S3).
• Resistance: 53.50 (R1) 54.00 (R2), 55.00 (R3).
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IronFX Daily Commentary 17/02/15
Language English
Greek talks end with no agreement The talks between the EU and Greece ended abruptly last night with accusations of bad will between the two sides. In fact, the disagreement seems to be between Greece and the European Commission on one side and the finance ministers on the other. Greece said that the Commission had offered an acceptable path forward, but that the finance ministers changed the proposal to one that would tie Greece to its current agreement. SYRIZA was elected on a promise to renegotiate the current agreement, so of course that was unacceptable to them and Greek Finance Minister Varoufakis rejected the offer. End of talks. Dutch Finance Minister Dijsselbloem said that ministers could reconvene on Friday if there’s a breakthrough. Without a deal, Greece’s current aid agreement expires at the end of February and the country could run out of money by the end of March, and almost definitely will by the end of July.
FX market remains remarkably calm. EUR was the worst-performing G10 currency as USD gained against most, but still it was nothing extraordinary – the day’s range was 0.78%, almost exactly in line with the average of the last six months of 0.82%. The 3m ATM 25 delta risk reversal has actually moved a bit higher in the last few days, indicating that EUR/USD puts are becoming a little bit less expensive relative to calls – in other words, demand for insurance against a falling EUR is weakening. Apparently FX investors still believe a solution will be found (as do I), although investors in the Greek stock market are not so confident. I would still expect more fireworks and volatility – and another leg down in EUR/USD – before a solution is found.
What options does Greece have? The easiest one would be to accept an extension of its current program. That would mean continuing the reform measures that are already promised, such as privatization, tax collection, cuts of pensions, reduction in the number of government employees, etc. As mentioned above however, SYRIZA won the election promising not to do this.
Greece has also threatened to turn to Moscow or China for the money. Moscow has indicated that it’s ready to help, but this is not a move to be taken lightly. Russia might demand a naval base in Greece in return, which could threaten Greece’s membership in NATO. This would not be the preferred solution for Greece, I assume.
Another possibility that academics are suggesting is for the government to issue a parallel currency to fund its operations while they continue the negotiations. This would be an IOU redeemable in euros at some point in the future when the money starts flowing again. There is some precedent for this even in the US, where some states – which are not allowed to run budget deficits – have done this to fund themselves temporarily. However, people might take this as the first step to creating a new currency and leaving the Eurozone. It could precipitate a bank run and financial chaos.
There are other technical matters that Greece can bring up as well to get the finance ministers to agree to allow the country greater access to funding, but these are not long-term solutions.
Looking at these possible solutions, #2 and #3 seem politically difficult and #4 is only a way of delaying the inevitable, so I think it comes down to #1. They will have to find some face-saving way to make Greece accept the current program without it appearing that they are accepting the current program. Officials have said they are already 70% down this road, but there are still 30% of the items that they can’t agree on. One way to square this circle might be just to rename a lot of the things that upset the Greeks, such as changing “program” to “contract” or something like that. The main sticking point seems to be political, and not just from Germany: the governments of the other peripheral countries, which have also endured wrenching adjustment programs, don’t want their voters to think that they went through all that austerity only because their representatives weren’t good negotiators. As European Commission President Jean-Claude Juncker said once, “We all know what to do, we just don’t know how to get re-elected after we’ve done it.” That applies to both sides in this case.
RBA minutes show doubts on domestic demand, China The Reserve Bank Australia (RBA) released the minutes of its February meeting. This was the meeting where it cut its benchmark interest rate by 25 bps. The minutes showed that doubts about a pickup in domestic spending and China’s demand for raw materials were behind the decision. The RBA still feels AUD is too strong, which it may well be, looking at various PPP valuations. I remain bearish on AUD based on my view that China is serious about refocusing its economy and will be buying less iron ore and coal from Australia in the future.
Today’s highlights: During the European day, the highlight will be the German ZEW survey for February. Both indices are forecast to have risen and this could be the 4th consecutive rise in the indices. Following the surprisingly strong Q4 GDP growth rate, this will add to the evidence that the German economy is gaining momentum.
In the UK, the CPI for January is expected to have eased further. This is likely to confirm the comments in last Thursday’s inflation report that inflation may drop below zero in the coming months and remain close to zero for much of 2015. Therefore, the market reaction could be limited as a decline is already priced in somewhat following the inflation report.
In Sweden, we get the CPI for January. Last week, the Riksbank cut rates and introduced a mini QE despite the board’s belief that the underlying inflation has bottomed out. They also expressed readiness to do more to ensure that inflation rises towards the target. The CPI rate is expected to remain unchanged at -0.3% yoy, while the CPIF – the Bank’s favorite inflation measure - is expected to stay at +0.5% yoy. If the actual figure falls below expectations, this will prompt further action from the Riksbank and could weaken SEK further. Otherwise, we could see a short-lived strengthening of the currency.
In the US, the Empire State manufacturing PMI for February is expected to show that business conditions for NY manufactures is expected to increase a bit, while he NAHB housing market index also for February is expected to show a small improvement. These could boost USD.
We have one speaker on Tuesday’s agenda: Philadelphia Fed President Charles Plosser.
Currency Titles:
EUR/USD slides as Greek debt talks fail
AUD/USD continues racing higher
GBP/JPY pulls back and finds support at 181.60
Gold hits resistance near 1238
WTI in a consolidative mode
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Currencies Text:
EUR/USD retreated on Monday after talks between Greece and Eurozone finance ministers over a new financing arrangement for Greece broke down abruptly. Nevertheless the rate hit support at 1.1315 (S1) and rebounded somewhat. As long as EUR/USD is trading in a sideways mode between the key support of 1.1260 (S2) and the resistance of 1.1540 (R2), I would consider the near-term bias to be neutral. As far as the broader trend is concerned, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. A clear dip below 1.1260 (S2) is the move that would shift the bias back to the downside and perhaps pull the trigger for another test at 1.1100 (S3).
• Support: 1.1315 (S1), 1.1260 (S2), 1.1100 (S3).
• Resistance: 1.1450 (R1), 1.1540 (R2), 1.1650 (R3).
AUD/USD continued its upside ride after finding support slightly above the 0.7730 (S1) barrier. Bearing in mind that the rate failed to move below the key obstacle of 0.7615 (S2) last Thursday, and that there is new positive divergence between the MACD and the price action, I would expect the up move to continue and challenge once again the 0.7870 (R1) area, which stands close to the 38.2% retracement level of the 21st of January – 3rd of February decline. A decisive break above that zone would signal the completion of a minor-term double bottom pattern and perhaps target the psychological zone of 0.8000 (R2). Nevertheless, on the daily chart I still see a longer-term downtrend. As a result, I would treat any near-term advances as corrective waves before sellers pull the trigger again. I still believe that we are going to see AUD/USD challenging the 0.7500 (S3) territory in the future.
• Support: 0.7730 (S1), 0.7615 (S2), 0.7500 (S3).
• Resistance: 0.7870 (R1), 0.8000 (R2), 0.8035 (R3).
GBP/JPY tumbled on Monday but hit support at the 181.60 (S1) barrier, near the 50-period moving average, and rebounded somewhat. The price structure on the 4-hour chart still suggests a short-term uptrend, and as a result I would expect another leg up and perhaps another test at the resistance hurdle of 184.00 (R1). However, today we get the UK CPI for January which is expected to have continue its disinflationary course. This could trigger a further pullback and probably delay any bullish move. On the daily chart, 14-day the RSI is still in a rising mode, while the MACD stays above both its zero and signal lines. These momentum signs reveal bullish momentum and magnify the case that we are likely to see a higher rate in the not-too-distant future.
• Support: 181.60 (S1), 180.25 (S2), 179.50 (S3).
• Resistance: 184.00 (R1), 184.50 (R2), 185.00 (R3).
Gold moved somewhat lower on Monday after finding resistance close to the 1238 (R1) level, but remained above the 1222 (S1) barrier, which lies fractionally close to the 61.8% retracement level of the 2nd – 22nd of January advance and above the neckline of the inverted head and shoulders formation seen on the daily chart and completed on the 12th of January. Although the price structure on the 4-hour chart still suggests a short-term downtrend, in the bigger picture, there is still the possibility for a higher low near the neckline of the pattern. Thus, I would still treat the decline from 1305 as a corrective phase, for now.
• Support: 1222 (S1), 1205(S2), 1185 (S3).
• Resistance: 1238 (R1), 1245 (R2), 1255 (R3).
WTI traded in a sideways manner yesterday, oscillating between the support line of 52.00 (S1) and the resistance of 53.50 (R1). This keeps the short-term bias flat in my view. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Nevertheless, bearing in mind that the 14-day RSI moved higher after rebounding from near its 50 line, while the daily MACD stands above both its zero and signal lines, I would prefer stay flat as far as the overall picture is concerned as well.
• Support: 52.00 (S1), 51.00 (S2), 49.65 (S3).
• Resistance: 53.50 (R1) 54.00 (R2), 55.00 (R3).
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IronFX Daily Commentary 18/02/15
Language English
Greece offers half a compromise The Greek newspaper Kathimerini reported that Greece will request a six-month extension to its loan agreement with its creditors. This is half of what the Eurogroup wanted. However, Greece still refuses to accept the reform program that the Eurogroup insists is an essential precondition of the loan. On the contrary, PM Tsipras announced that his government would begin submitting legislation to overturn some parts of the program, such as reversing some labor market deregulation and protecting homeowners from foreclosure. Greece’s proposal is similar to the one that was floated on Monday by EC economic chief Pierre Moscovici but quickly rejected by the Eurogroup of Eurozone finance ministers, although the new legislation contravenes the Moscovici plan as well.
The plan is due to be sent to Eurogroup chief Jeroen Dijsselbloem this morning and the Dutch finance minister will decide if it merits calling an extraordinary Eurogroup meeting Friday. So far, the Eurogroup has remained adamant that Greece has to continue with the terms of the loan that the previous administration agreed to, but the new Greek government argues that it was elected with a pledge to renegotiate those terms and so it can’t. Greece’s refusal may create problems in getting some countries’ parliaments to approve the extension.
Greece’s move is seen in the market as somewhat of an advance, and the euro has strengthened this morning while the safe havens CHF and JPY are the worst performing G10 currencies. Personally though I don’t see any compromise here – the fact that Greece is submitting legislation to overturn the conditions of the program seems to me to be making irreversible their refusal to compromise, which is EUR-negative. I await Dijsselbleom’s response, however. It may be that he decides to compromise rather than push the situation to the brink.
Why Greece leaving the Eurozone – a “Grexit” – would be a disaster The Eurozone is a common currency shared by several countries. If it is found that countries can leave, however, it will be seen just as a fixed exchange rate agreement, like EMU was previously. In that case, the inevitable question will be “who’s next?” Once that happens, then we are back to the old days of speculative attacks against currencies and the whole structure is at risk of breaking down.
How might that happen? Imagine that you live in Spain and you have your money in the local bank. You’re worried that your country might be next to pull out of the Eurozone. (Remember that the point of pulling out of the Eurozone is so that you can reinstate your own currency, which then falls in value vs the euro and makes your country more competitive internationally.) So it makes a lot of sense for you to take your money out of the local bank and put it in a bank in Germany. If your country does pull out, then you are still holding euros while your mortgage is redenominated in a newly depreciating currency – you win! If your country doesn’t pull out…you are no worse off than you would have been otherwise. Heads you win, tails you don’t lose. A no-cost hedge.
Speculators outside the country could do the same sort of thing by borrowing money in a country that they think might leave and depositing it in a bank in Germany. This could even become a self-fulfilling prophecy as it would drive up interest rates in the troubled countries and make it more difficult for them to stay in the euro.
As a result of this kind of thinking, once Greece pulls out, we are likely to see the greatest bank run in history. With the experience of Greece (and Cyprus) in mind, savers will be quick to act. The banking systems of Ireland, Portugal and Spain, perhaps even Italy, are likely collapse in short order.
There are only two ways that this could be avoided. The first would be if the ECB and other EU institutions could make a promise that would be convincing enough to persuade people not to move their money. This would involve Europe-wide bank insurance and probably some measure of fiscal transfer – changes that the core countries have strongly resisted up to now. The other way, which some observers are starting to suggest for Greece, would be to institute capital controls to prevent people from moving their savings out. But in that case the euro really no longer exists – there would in effect be a Portuguese euro, a Spanish euro, an Irish euro, etc. as markets sprang up to allow investors to offset or take on country risk as they saw fit. In other words, that would precipitate the break-up of the euro in fact if not in name.
BoJ keeps steady, a bit more upbeat The Bank of Japan ended its two-day policy meeting and kept policy steady, as everyone expected. The commentary accompanying the decision was somewhat more upbeat than before, as it said that exports and industrial production were “picking up.” Curiously, it also said that “Inflation expectations appear to be rising on the whole from a somewhat longer-term perspective.” I don’t know what they’re talking about, as both breakeven inflation rates and the 5yr/5yr inflation swap are trending lower. At their last meeting, Bank of Japan cut its inflation forecast for the coming fiscal year beginning in April to 1% from around 2%, an admission that they are not going to hit the 2% target that they were supposed to achieve by then, and today it estimated that inflation is actually running about 0.5%. Gov. Kuroda added little to our knowledge at his press conference. He made no comments to clarify the news story that ran last week reporting that some Bank policy makers view further monetary easing to shore up inflation as a counterproductive step for now. He said only that the BoJ’s QQE policy is having the intended effects and there’s no need for further easing now, but he wouldn’t hesitate to act again in the future if needed. This confirms my view that more easing is still possible in the future. Indeed, I’d say it’s likely.
Indonesia unexpectedly cuts rates for the first time in three years. Bank Indonesia lowered its reference rate by 25 bps to 7.5% as output shrinks and imports fall. The country thus joins the parade of countries cutting rates.
Today’s highlights: During the European day, from the UK, we get unemployment rate for December and Bank of England February meeting minutes. The minutes are likely to show a similar outlook to Thursday’s inflation report. Thus, the market may choose to overlook the meeting minutes and focus mainly on the employment report. A decline in the unemployment rate and acceleration in average weekly earnings could bring forward estimates of the first rate hike and thereby strengthen GBP.
The ECB will hold a non-monetary policy meeting to decide whether or not to continue providing emergency liquidity assistance (ELA) to Greek banks. If the ECB take away ELA, the Greek government may have to impose capital controls to avoid mass withdrawals and the collapse of the country’s financial system.
In the US, the Fed releases the meeting minutes of its Jan. 27-28 meeting. The statement was slightly more confident on the economy, with “solid job gains” upgraded to “strong job gains.” Any reference to when they may start normalization or even remove the line about being “patient” could boost USD. US housing starts and building permits for January are also coming out. Both figures are expected to rise, keeping the overall trend consistent with an improving housing market. Industrial production for January is expected to rise, a turnaround from the previous month.
Besides Gov. Kuroda, we have one speaker on Wednesday’s agenda: Riksbank Deputy Governor Cecilia Skingsley speaks.
Currency Titles:
EUR/USD hits resistance at 1.1450
NZD/USD ready to challenge the 0.7585 barrier
GBP/JPY extends the rebound from 181.60
Gold tumbles and hits the support of 1205
WTI tumbles but recovers within a few hours
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Currencies Text:
EUR/USD rebounded on Tuesday, hit our resistance hurdle of 1.1450 (R1) and retreated somewhat. As long as the pair is trading in a sideways mode between the key support of 1.1260 (S2) and the resistance of 1.1540 (R2), I would keep my view that the near-term bias is neutral. As far as the broader trend is concerned, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. However, a clear dip below 1.1260 (S2) is the move that would shift the bias back to the downside, I believe. Such a break could probably pull the trigger for another test at 1.1100 (S3), defined by the low of the 26th of January.
• Support: 1.1315 (S1), 1.1260 (S2), 1.1100 (S3).
• Resistance: 1.1450 (R1), 1.1540 (R2), 1.1650 (R3).
NZD/USD continued its upside ride and managed to move above the 200-period moving average and the 50% retracement level of the 15th of January – 3rd of February decline. The short-term bias is to the upside and therefore I would expect the rate to challenge the resistance hurdle of 0.7585 (R1) in the near future. A move above that could test the key line of 0.7625 (R2), which stands close to the 61.8% retracement level of the aforementioned down move. Taking a look at our short-term oscillators, I see that the RSI found resistance near its 70 line and slid somewhat, while the MACD shows signs of topping and could fall below its trigger soon. In the bigger picture, I still believe that the overall trend is negative. As a result, I would treat the recovery from 0.7175 as a corrective phase, at least for now.
• Support: 0.7500 (S1), 0.7450 (S2), 0.7340 (S3).
• Resistance: 0.7585 (R1), 0.7625 (R2), 0.7700 (R3).
GBP/JPY moved higher on Tuesday, after hitting support at the 181.60 (S1) barrier, near the 50-period moving average. The price structure on the 4-hour chart still suggests a short-term uptrend, and as a result I still expect the rate to continue higher and perhaps challenge again the resistance of 184.00 (R1). If the BoE meeting minutes show the same tone as the inflation report last Thursday, then there is a good possibility for this to happen. A fall in the UK unemployment rate and an acceleration of the UK wage growth could work in favor of such a move as well. On the daily chart, the 14-day RSI stays in a rising mode, while the MACD stands above both its zero and signal lines. These momentum signs reveal bullish momentum and magnify the case that we are likely to see a higher rate in the not-too-distant future.
• Support: 181.60 (S1), 180.25 (S2), 179.50 (S3).
• Resistance: 184.00 (R1), 184.50 (R2), 185.00 (R3).
Gold fell yesterday, to break below the support (turned into resistance) barrier of 1222 (R1), which lies fractionally close to the 61.8% retracement level of the 2nd – 22nd of January advance, and below the neckline of the inverted head and shoulders formation seen on the daily chart and completed on the 12th of January. That move erased the hopes of the bulls for a rebound near the neckline and strengthened the likelihood for further declines. During the early European morning, the yellow metal is testing the support obstacle of 1205 (S1), where a clear and decisive dip is likely to see scope for more bearish extensions and perhaps target the next support at 1185 (S2).
• Support: 1205 (S1), 1185 (S2), 1170 (S3).
• Resistance: 1222 (R1), 1238 (R2), 1245 (R3).
WTI fell sharply yesterday, hit support near our 51.00 (S2) obstacle, and rebounded strongly to hit resistance at 54.00 (R2). Subsequently, the price retreated to trade in a quiet mode back below the 53.50 (R1) line. Despite these volatile moves, the fact that that WTI ended the day more or less unchanged keeps the short-term bias flat, in my view. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Nevertheless, bearing in mind that the 14-day RSI continued higher after rebounding from near its 50 line, while the daily MACD stands above both its zero and signal lines, I would prefer stay flat as far as the overall picture is concerned as well.
• Support: 52.00 (S1), 51.00 (S2), 49.65 (S3).
• Resistance: 53.50 (R1) 54.00 (R2), 55.00 (R3).
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IronFX Daily Commentary 19/02/15
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Some FOMC members start to get cold feet The minutes of the January Federal Open Market Committee (FOMC) meeting showed that some members were starting to get nervous about the possible impact of raising rates or even starting the normalization process. “Many participants regarded dropping the “patient” language in the statement, whenever that might occur, as risking a shift in market expectations for the beginning of policy firming toward an unduly narrow range of dates. As a result, some expressed the concern that financial markets might overreact, resulting in undesirably tight financial conditions.” There was an unusual discussion about the dollar, with participants seeming to agree that the stronger dollar could be “a persistent source of restraint on US net exports,” while “a few participants pointed to the risk that the dollar could appreciate further.” Is this the US joining in the currency wars? Net exports are important because they subtracted
However, it’s important to remember two points: first, the meeting took place before the latest US non-farm payrolls, which corroborated the fact that the labor market is continuing to improve. Secondly, exports account for a relatively small share of American GDP, which is basically driven by domestic consumer demand. Hence the statement may not be as significant as it seems at first. While longer-dated Fed funds rate expectations retreated by almost 10 bps yesterday, this didn’t even unwind all of the 13 bps rise from the previous day. The market still expects the Fed to tighten this summer and hence the dollar remains underpinned.
ECB keeps pressure on Greece, EC rejects Greek approach Yesterday the ECB increased the amount of emergency liquidity assistance (ELA) funds that Greek banks can draw on by a relatively small EUR 3.3bn to EUR 68.3bn. The move is enough to counter the continued flight of capital from the country but not enough to provide cash to finance the government through the purchase of T-bills. It indicates that the ECB is trying to keep the Greek economy stable while maintaining pressure for a political deal.
Moreover, Europe’s response to Greece’s proposal for a settlement hasn’t been good. I haven’t found any specific response to the proposal that Greece made Tuesday night, but there was an interview with European Commission (EC) President Juncker yesterday where he said that Greece must meet all financial obligations to its European and international partners agreed to by past governments. This is precisely the position that the Athens government has rejected. It’s significant because the EC had been seen as somewhat more amenable to compromise than the Eurogroup of finance ministers. Last week for example the EC put forward a compromise that the Greek government found acceptable, but it was immediately rejected by the Eurogroup and talks broke up within minutes. All told, I would say that the situation remains critical and we will see tomorrow – the deadline for Greece’s proposal to the Eurogroup – what happens when the immovable object meets the irresistible force. So far it doesn’t look good! My guess is that they find some way to delay a decision further. Nonetheless I think the risks are rising and I would be cautious about EUR.
Japan trade deficit narrows more than expected Japan’s trade deficit narrowed more than expected in January as exports rose faster and imports shrank more than expected. The news may indicate that Asian demand is still robust, that lower oil prices are helping the trade account, or that the J-curve effect is finally starting to kick in for Japan. I would guess the latter has at least some effect and that it signifies the success of Japan’s weak-yen policy. While there is some talk now ahead of the April elections of the bad side of the weak yen – reducing the purchasing power of Japanese consumers – fundamentally nobody in Japan cares about consumers and once the vote is over, I expect policymakers to concentrate once again on how to support manufacturers. That means weakening the yen further.
Today’s highlights: During the European day, the main event will be the first release of the minutes of the ECB Governing Council monetary policy discussions. This first account has an additional importance as it contains the discussion of the Bank’s QE program announced on Jan.22. 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. The minutes will be released four weeks after each policy decision meeting.
As for the indicators, France CPI for January is expected to fall into deflation. Eurozone preliminary consumer confidence index for February and current account for December are also due out.
In the US, initial jobless claims for the week ended Feb.14 are expected to fall, adding to signs of an improving labor market. The Philadelphia Fed business activity index for February is forecast to increase a bit, while Conference Board leading index for January is expected to decelerate from the previous month.
As for the speakers: ECB Governing Council member Jens Weidmann, Riksbank Deputy Governor Per Jansson and Bank of Canada Deputy Governor Agathe Cote speak.
Currency Titles:
EUR/USD rebounds on the FOMC minutes
GBP/USD surges on strong UK employment data
EUR/JPY slides after hitting the lower bound of the wedge
Gold rebounds from 1200
WTI plunges and finds support a few cents above 50
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EUR/USD rebounded from slightly above the 1.1315 (S1) barrier after in the minutes of the latest FOMC meeting showed the Committee willing to maintain interest rates near zero for longer, in contrast with market expectations of an earlier hike due to an improving labor market. Nevertheless, the up move was halted slightly below the resistance line of 1.1450 (R1). Moreover, as long as the pair is trading in a sideways mode between the key support of 1.1260 (S2) and the resistance of 1.1540 (R2), I would keep my view that the near-term bias is neutral. As far as the broader trend is concerned, I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. However, a clear dip below 1.1260 (S2) is the move that would shift the bias back to the downside, I believe. Such a break could probably pull the trigger for another test at 1.1100 (S3), defined by the low of the 26th of January.
• Support: 1.1315 (S1), 1.1260 (S2), 1.1100 (S3)
• Resistance: 1.1450 (R1), 1.1540 (R2), 1.1650 (R3)
GBP/USD surged on Wednesday after the UK unemployment rate declined, while wages accelerated in December. After hitting support around 1.5350 (S2), Cable shot up, breaking above the resistance (now turned into support) of1.5435 (S1). I still expect the bulls to challenge the psychological obstacle of 1.5500 (R1). But given the negative divergence between both of our short-term oscillators and the price action, and also that the rate is trading within a possible rising wedge formation, I would be careful of a possible down move as soon as the rate challenges the 1.5500 (R1) territory. As for the broader trend, as long as Cable is trading below the 80-day exponential moving average, I would consider the overall downtrend to be intact and I would see the recent advance as a corrective phase, at least for now. It is worth noting that currently the 80-day EMA coincides with the 1.5500 (R1) psychological area. As a result, only a clear close above that zone could have larger bullish implications, and make me argue for a possible trend reversal.
• Support: 1.5435 (S1), 1.5350 (S2), 1.5300 (S3)
• Resistance: 1.5500 (R1), 1.5590 (R2), 1.5675 (R3)
EUR/JPY moved somewhat lower after finding resistance at 136.20 (R1) and near the lower bound of a rising wedge formation seen on the 4-hour chart and completed on the 16th of February. During the early European morning, the rate is trading near the support of 135.20 (S1) and the 50-period moving average. But, as long as the rate stays below the lower bound of the aforementioned wedge, I would consider the short-term bias to be mildly to the downside. A dip below 134.15 (S2) would confirm a forthcoming lower low and perhaps target the next support at 132.30 (S3). On the daily chart, we see that the strong recovery from 130.00 remained limited near the 38.2% retracement level of the 29th of December – 26th of January plunge. Hence, I would still see that recovery as a corrective phase.
• Support: 135.20 (S1), 134.15 (S2), 132.30 (S3)
• Resistance: 136.20 (R1), 137.65 (R2), 139.35 (R3)
• Gold rebounded after finding support near the psychological zone of 1200 (S1), which stands marginally close to the 76.4% retracement level of the 2nd – 22nd of January advance. The rebound was limited below the resistance line of 1222 (R1), and this keeps the short-term bias negative in my view. I would expect the forthcoming wave to be negative and perhaps challenge again the 1200 (S1) zone. A break below that round figure could see scope for more bearish extensions and perhaps target the next support at 1185 (S2). On the daily chart, Thursday’s move erased the hopes of the bulls for a rebound near the neckline and strengthened the likelihood for further declines.
• Support: 1200 (S1), 1185 (S2), 1170 (S3)
• Resistance: 1222 (R1), 1238 (R2), 1245 (R3)
WTI collapsed yesterday, violating two support (turned into resistance) barriers in a row, but the decline was stopped a few cents above 50.00, at 50.15 (S1). The move below 51.00 (R1) signalled the completion of a possible double top formation on the 1-hour chart and this increases the possibilities for further declines. A clear dip below the support 49.65 (S2) could confirm that and perhaps pull the trigger for a test at the next support of 48.75 (S3). On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Moreover, the 14-day RSI is back below its 50 line, while the daily MACD has topped slightly above its zero line and appears willing to obtain a negative sign in the near future. These momentum signs amplify the case for further short-term declines as well.
• Support: 50.15 (S1), 49.65 (S2), 48.75 (S3)
• Resistance: 51.00 (R1) 52.00 (R2), 53.50 (R3)
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IronFX Daily Commentary 20/02/15
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Greece comes down to the wire It looks like the talks between Greece and its creditors will come down to the wire. Germany yesterday rejected Greece’s request to extend its EUR 172bn rescue package by six months, but the Eurogroup of finance ministers will meet today to discuss it anyway. The stumbling block is apparently that Greece wants to find “mutually acceptable financial and administrative terms.” Germany argues that really, all Greece wants is a six-month bridging loan while they renegotiate the terms of the bailout. Germany (and several other countries) believe Greece should commit to fulfilling the same conditions that it agreed to under the previous administration, something that PM Tsipras has vowed not to do.
In fact, the FT said that Germany wants no more than a three-sentence letter from Greece requesting the extension, promising to complete its reform program and committing to negotiate any changes with bailout monitors. But the Greek government said it would not revise the letter and that the Eurogroup has just two choices: accept it or reject it. Rejecting it means, in effect, that Greece could go bust as early as next month, forcing it to either cut spending or default on debt payments. Greek banks would also lose some aid payments perhaps even emergency funding from the ECB, which could hasten the outflow of funds from the banking system. It is coming down to a game of chicken.
All is not lost yet, however. It’s notable that this meeting will be in person in Brussels, rather than by teleconference. Apparently that’s because of the need to forge a compromise. The meeting will be held at 1400 GMT. The finance ministers’ deputies met for seven hours yesterday and reportedly are “close to an agreement but subject to political discussion,” according to Market News. Also, it may be significant that this is a three-day weekend in Greece (and Cyprus as well). The same holiday was used in 2013 to impose the haircut on depositors in Cyprus’ banks.
Even at this late date the FX market remains remarkably sanguine about the outcome of the talks. The EUR/USD risk reversal is almost exactly the same as the GBP/USD risk reversal, while implied vol on EUR/USD options is well within the normal range relative to historical. Greek stocks also ended the day up 1%, which although down from the midday level isn’t bad. Our simple average of three major Greek bank stocks rose 6.2% yesterday (vs +0.6% for the Eurostoxx banks index), which is also encouraging – apparently someone believes a successful conclusion is likely.
With the market already assuming a successful outcome, news of an agreement probably would not have that big an impact on EUR/USD. At best we might go back to the resistance line of 1.1450, in my view. The surprise would be a failure to come to an agreement. It’s not clear whether today’s deadline is really a deadline or just a very, very sick line, but in any event, failure to come to an agreement today would probably start people thinking more seriously about the consequences and raise the risk premium on EUR/USD, meaning it could head back to the lows of 1.1100.
US market thinking about Yellen’s testimony The leading index rose, but not by as much as it has been recently. Jobless claims continued to be volatile, which tells us more about problems with the seasonal adjustment than it does about the labor market. The Philadelphia Fed manufacturing survey was similar to the Empire State survey in that it too showed modest growth in manufacturing. So no change in the picture of continued steady but unspectacular growth in the US. The implied interest rates on Fed funds, which plunged in the wake of the dovish FOMC minutes on Wednesday, crept higher Thursday as investors re-read the minutes and thought about what Fed chair Janet Yellen is likely to say next Tuesday and Wednesday, when she gives her semi-annual testimony to Congress. She’s likely to be more in line with the hawkish comments that we’ve heard from other FOMC members recently, which could boost sentiment for the dollar.
Today’s highlights: Needless to say, the highlight of the day will be Greece once again.
As for the indicators, Friday is a PMI day. China is on holiday and so did not announce its PMI. Japan’s manufacturing PMI for February fell to 51.5 from 52.2, contrary to estimates. This was the lowest level since last July as new orders and employment slowed. The index is not particularly market-affecting for Japan, but the decline does make me think that once the election in April is past, the administration’s attention will return to producers rather than consumers and we are likely to see more willingness to talk down the yen.
During the European session, the preliminary manufacturing and service-sector PMI data from several European countries and the Eurozone as a whole are coming out. The manufacturing PMIs are expected to be higher, which could suggest that Eurozone economies have gained momentum in 2015 and could strengthen EUR, at least temporarily.
In the UK, retail sales for January are expected to fall, a turnaround from the previous month.
From Canada, we get the retail sales for December.
In the US, the preliminary Markit manufacturing PMI for February is coming out.
We have no speakers scheduled on Friday’s agenda.
Currency Titles:
EUR/USD again hits resistance at 1.1450
USD/JPY in a trendless mode
EUR/GBP finds resistance slightly above 0.7400
Gold tumbles after hitting resistance at 1222
WTI hits the 50 area and shoots up
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EUR/USD again hit the resistance line of 1.1450 (R1) and retreated to trade in the middle of the range between that barrier and the support of 1.1315 (S1). The pair continues to trade in a sideways mode between the key hurdles of 1.1260 (S2) and 1.1540 (R2), thus I would maintain my “wait and see” approach as far as the short-term horizon is concerned. With regards to the broader trend I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. A clear dip below 1.1260 (S2) is the move that would shift the bias back to the downside, I believe. Such a break could probably pull the trigger for another test at 1.1100 (S3), defined by the low of the 26th of January.
• Support: 1.1315 (S1), 1.1260 (S2), 1.1100 (S3)
• Resistance: 1.1450 (R1), 1.1540 (R2), 1.1650 (R3)
USD/JPY rebounded after hitting support at 118.40 (S1), near the 200-period moving average, but the up-move was limited below the resistance obstacle of 119.30 (R1). As long as the rate stays between these two barriers, I would consider the near-term bias to be neutral. However, on the daily chart the rate is still trading above both the 50- and the 200-day moving averages and above the upper line of the triangle pattern that had been containing the price action since November, and this keeps the major upside path intact. However, I would like to see a break above the resistance of 120.50 (R3) to convince that the longer-term uptrend is back in force.
• Support: 118.40 (S1), 118.00 (S2), 117.60 (S3)
• Resistance: 119.30 (R1), 120.00 (R2), 120.50 (R3)
EUR/GBP retreated after finding resistance slightly above the 0.7400 (R1) hurdle. Currently the rate is heading for another test at the support area of 0.7350 (S1), where a clear dip would signal a forthcoming lower low on the 4-hour chart and perhaps open the way for the support zone of 0.7230 (S2). Both our short-term oscillators remain within their bearish territories and point down, indicating downside momentum and amplifying the case for further negative extensions. In the bigger picture, the downside exit of the triangle pattern on the 18th of December signaled the continuation of the longer-term downtrend. Since then, the price structure has been lower peaks and lower troughs below both the 50- and the 200-day moving averages, thus I maintain my bearish view on the pair.
• Support: 0.7350 (S1), 0.7230 (S2), 0.7100 (S3)
• Resistance: 0.7400 (R1), 0.7445 (R2), 0.7500 (R3)
Gold slid yesterday after hitting the 1222 (R1) hurdle. The precious metal is heading for another test near the psychological zone of 1200 (S1), which stands marginally close to the 76.4% retracement level of the 2nd – 22nd of January advance. A clear and decisive dip below that round figure could set the stage for extensions towards the 1185 (S2) support territory. On the daily chart, the move below the neckline of the inverted head and shoulders completed on the 12th of January erased the hopes of the bulls for a rebound near the neckline and strengthened the likelihood for further declines.
• Support: 1200 (S1), 1185 (S2), 1170 (S3)
• Resistance: 1222 (R1), 1238 (R2), 1245 (R3)
WTI surged on Thursday after finding solid support near the psychological area of 50.00 (S2). The price also violated the resistance (turned into support) hurdle of 51.85 (S1), but since there is still the possibility for a lower high on the 1-hour chart, I would see a cautiously negative picture. A fall below the 51.85 (S1) line is likely to confirm that and perhaps pull the trigger for another test at the psychological zone of 50.00 (S2). On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Nevertheless, both the 14-day RSI and the daily MACD stayed within their bullish territories. Given that, I would maintain a flat stance as the longer-term picture is concerned. Only a close above the 50-day moving average and the 55 key barrier would make me believe a trend reversal was likely.
• Support: 51.85 (S1), 50.00 (S2), 49.00 (S3)
• Resistance: 52.90 (R1) 54.30 (R2), 55.00 (R3)
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IronFX Daily Commentary 23/02/15
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• When the irresistible force of Democracy met the immovable object of Bureaucracy, guess who won? Greece Friday capitulated as more and more money left the Greek banking system (estimated EUR 800mn a day) and it became clear that capital controls would be necessary soon if an agreement wasn’t reached. Moreover, the Greek government would have run out of money in any event. Greece basically had to accept virtually all the demands of its creditors: asking for an extension of the hated reform program, complete with monitoring by the troika, and promising not to roll back reforms introduced by previous governments or to introduce any new measures that will widen the deficit. In return, Greece’s creditors agreed to extend its current bailout agreement for four months. I could see only two concrete concessions: 1) the troika was renamed “the three institutions,” and 2) Greece will be able to propose its own list of reforms instead of having them imposed from outside. But of course those reforms have to be acceptable to the creditors, so there is not that much leeway.
• Greece will submit to the Eurogroup by this evening a lists of proposed reforms, such pledges on structural issues such as tax evasion, corruption and public administration. If satisfied, they will endorse the list, which then goes to the various parliaments in the Eurozone for ratification. The Greek Parliament also has to approve the agreement, and some SYRIZA members could vote against it.
• Despite all the drama accompanying the negotiations, the agreement is only a temporary measure that simply allows for a breathing space while negotiations continue. First off, the agreement leaves several important issues unresolved, such as what reform measures Greece must adopt in order to get various aid payments. Secondly, the money will go to paying the interest on Greece’s debt, not to helping the Greek economy, so in fact the troika is agreeing to bail out European banks, not Greece. Most importantly, the financing lasts for only four months, meaning it ends right before Greece must make two crucial bond payments to the ECB totaling EUR 6.7bn. Greece does not have the money to make these payments, therefore discussions are likely to begin “very soon” on a possible third bailout for the country.
• During the four months, the two sides will negotiate the target for Greece’s fiscal position. Under the previous agreement, Greece was supposed to run a primary budget surplus – surplus before interest payments – of 3% this year and 4.5% in 2016. The EU wants Greece to run such a big surplus so that the country’s debt can fall from 175% of GDP currently to 110% by 2022. To call this “wishful thinking” is an overstatement, because that would imply it involves thinking as well as wishing, when in fact it is just wishing. One study of 54 countries from 1974 to 2013 found that only about 15% of the time did countries manage to run a primary surplus of at least 3% of GDP for five years, and surpluses of 4% of GDP for more than a decade were extremely rare (only five countries). The Greeks want a write-down of their debt so that they can manage to meet their debt/GDP targets with a more reasonable 1.5% primary surplus. One major concession: Eurogroup President Jeroen Dijsselbloem said that Athens may be able to lower the budget surplus target, which is a key demand of the new government.
• Nonetheless, the negotiation over this point is likely to be difficult as it will encompass a wide-ranging discussion about debt sustainability and the potential growth rate of the Greek economy. We can expect a last-minute crunch similar to what we saw this time around. The difference is that this time, the government was elected and immediately thrown into negotiations with a two-week deadline. It didn’t have any time to prepare. The next time, Athens will have four months to figure out a “Plan B” in case the Eurozone doesn’t go along with its proposals. Having a well-thought-out alternative, which could include leaving the Eurozone, could boost Greece’s bargaining position substantially. It could also make a Grexit more likely as there will be more time on both sides to prepare for that possibility.
• FX market impact: EUR/USD bounced back from the lows on Friday after the news, but failed even to touch the 1.1450 highs of Tuesday or Thursday, and is opening in Europe at around 1.1377 – virtually unchanged from its 1.1363 opening on Friday. The market’s verdict therefore appears to be that while the talks were successful (hence no further declines in EUR/USD), they were not so successful as to improve the prospects for EUR. The underlying tensions within the euro remain, plus the pressure of the QE program that will start next month. I remain bearish on the euro.
• Today’s highlights: Aside from Greece, the main point of interest today is the German IFO survey for February. All three indices are expected to have risen. Following the strong ZEW survey released last Tuesday, this would add to the growing confidence that Europe’s largest economy is reviving. It could strengthen EUR a bit, but of course the currency depends more on what happens to Greece.
• 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 Feb. 20. Deposits were unchanged in the previous week, suggesting that there was little if any intervention.
• In the US, existing home sales for January are forecast decrease a bit. The housing starts and building permits released last week were consistent with an improving housing market. If the existing home sales are in line with a strong housing sector, this may be USD-supportive. Dallas Fed manufacturing index is also coming out.
• As for the rest of the week,the highlight will be Fed Chair Janet Yellen’s twice-a-year report on monetary policy to Congress (the Senate on Tuesday and the House of Representatives on Wednesday). Also on Tuesday, Bank of England Governor Mark Carney and other MPC members testify to the House of Commons Treasury Committee. On Wednesday, ECB President Mario Draghi testifies to the European Parliament in Brussels. Finally on Friday, we have the usual end-of-month data dump from Japan, including the important CPI figures.
Currency Titles:
EUR/USD rebounds after Greek deal
EUR/JPY higher after Greek debt agreement
GBP/USD breaks the lower line of a wedge
Gold hits again the psychological zone of 1200
WTI tumbles but stays above 50.00
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• EUR/USD rebounded strongly from marginally above the key support hurdle of 1.1260 (S1) on Friday after Eurogroup agreed to extend Greece’s bailout program by four months. Nevertheless, the pair continues to oscillate between the aforementioned support and the resistance of 1.1540 (R2), thus I would maintain my “wait and see” approach as far as the short-term horizon is concerned. With regards to the broader trend I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. A clear dip below 1.1260 (S1) is the move that would shift the bias back to the downside, I believe. Such a break could probably pull the trigger for another test of 1.1100 (S2), defined by the low of the 26th of January.
• Support: 1.1260 (S1), 1.1100 (S2), 1.1025 (S3)
• Resistance: 1.1450 (R1), 1.1540 (R2), 1.1650 (R3)
• EUR/JPY rebounded on the Greek debt agreement as well. The pair hit support slightly below the 133.80 (S1), firmed higher, but the move was limited below our resistance of 136.20 (R1). Taking a look at our momentum studies, I would expect the forthcoming wave to be negative, perhaps for another test of the 133.80 (S1) zone. Both the oscillators stay below their respective downside resistance lines, with the RSI hitting resistance at its line and turning down. If the bears are strong enough to drive the battle below the 133.80 (S1) area, I would expect them to challenge the next obstacle at 132.30 (S2).On the daily chart, we see that the strong recovery from 130.00 remained limited near the 38.2% retracement level of the 29th of December – 26th of January plunge. Hence, I would still see that recovery as a corrective phase.
• Support: 133.80 (S1), 132.30 (S2), 130.00 (S3)
• Resistance: 136.20 (R1), 137.65 (R2), 139.35 (R3)
• GBP/USD dipped below the lower bound of a rising wedge formation that had been containing the price action since the 27th of January. The fall came after the greater-than-anticipated decline in the UK retail sales for January, and confirmed the negative divergence between both our short-term oscillators and the price action. The rate hit support near the 1.5350 (S1) barrier, where a clear break may prompt extensions towards the next obstacle at 1.5300 (S2). As for the broader trend, as long as Cable is trading below the 80-day exponential moving average, I would consider the overall downtrend to be intact and I would see the recovery from 1.4950 as a corrective phase. It is worth noting that currently the 80-day EMA coincides with the 1.5500 (R2) psychological area. As a result, only a clear close above that zone could have larger bullish implications, and make me argue for a possible trend reversal.
• Support: 1.5350 (S1), 1.5300 (S2), 1.5200 (S3)
• Resistance: 1.5435 (R1), 1.5500 (R2), 1.5590 (R3)
• Gold continued its slide on Friday to reach again the psychological line of 1200 (S1), which stands close to the 76.4% retracement level of the 2nd – 22nd of January advance. The price structure on the 4-hour chart still suggests a near-term downtrend and therefore, I would expect a clear and decisive dip below that round figure to set the stage for extensions towards the 1185 (S2) support territory. On the daily chart, the move below the neckline of the inverted head and shoulders completed on the 12th of January erased the hopes of the bulls for a rebound near the neckline and strengthened the likelihood for further declines.
• Support: 1200 (S1), 1185 (S2), 1170 (S3)
• Resistance: 1222 (R1), 1238 (R2), 1245 (R3)
• WTI tumbled on Friday, but the fall stayed limited to 20 cents above the psychological area of 50.00 (S1). The price structure on the 1-hour chart remains one of lower highs and lower lows within the black downside channel, but I would prefer to see a clear move below the 50.00 (S1) round number before getting more confident on the downside. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Moreover, the 14-day RSI turned down and fell below its 50 line, while the daily MACD has topped and appears able to move below both its zero and signal lines in the near future. These signs show that the momentum is getting negative again and magnify the case for further declines, at least in the short run.
• Support: 50.00 (S1), 49.00 (S2), 48.00 (S3)
• Resistance: 53.30 (R1) 52.15 (R2), 52.75 (R3)
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IronFX Daily Commentary 24/02/15
Language English
Currency Titles:
EUR/USD slightly lower ahead of Yellen’s testimony
AUD/USD ready to challenge the 0.7750 area
USD/CAD escapes from a triangle
Gold breaks below 1200 but recovers
WTI sinks below 50.00
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• EUR/USD slid on Monday, but the decline was halted above the key support hurdle of 1.1260 (S1). The pair continues to oscillate between that support and the resistance of 1.1540 (R2), thus I would maintain my “wait and see” approach as far as the short-term horizon is concerned. Today, Fed Chair Janet Yellen testifies to the Senate. After the strong US employment report for January, it is likely that she will sound a bit more hawkish than the minutes of the latest FOMC meeting did. If so, the pair could eventually dip below the important barrier of 1.1260 (S1). Such a break could probably open the way for another test at 1.1100 (S2), defined by the low of the 26th of January. With regards to the broader trend I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. In March, the ECB starts is QE program, which, I believe, will keep the pair under selling pressure and the current downtrend in force.
• Support: 1.1260 (S1), 1.1100 (S2), 1.1025 (S3)
• Resistance: 1.1450 (R1), 1.1540 (R2), 1.1650 (R3)
• AUD/USD slid after hitting resistance fractionally below the 38.2% retracement level of the 21st of January – 3rd of February decline. During the early European morning Tuesday, the rate is heading towards the support barrier of 0.7750 (S1), where a clear and decisive break would confirm the negative divergence seen between our oscillators and the rate, and perhaps set the stage for another test at the 0.7640 (S2) area, determined by the lows of the 3rd and 12th of February. On the daily chart, the break below the psychological round number of 0.8000 (R3) back on the 21st of January, signalled the continuation of the longer-term downtrend. Therefore I would treat the recent recovery from 0.7640 (S2) as a corrective move. I still believe that we are going to see AUD/USD challenging the 0.7500 (S3) territory in the future.
• Support: 0.7750 (S1), 0.7640 (S2), 0.7500 (S3)
• Resistance: 0.7870 (R1), 0.7940 (R2), 0.8000 (R3)
• USD/CAD escaped from a triangle formation and broke above the resistance (now turned into support) barrier of 1.2550 (S1). Having that in mind, and also that the rate stays above the uptrend line taken from back at the low of the 31st of December, I would expect the up wave to continue and challenge the resistance line of 1.2700 (R1), defined by the high of the 11th of February. A break above 1.2700 (R1) could pull the trigger for the high of the 30th of January, at 1.2800 (R2). The catalyst for such a rally may be the release of the Canadian CPI data on Thursday. Inflation is likely to have seen a large slowdown, something that could increase expectations of more aggressive easing from the BoC. On the daily chart, the pair is trading above both the 50- and the 200-day moving averages, and well above the blue uptrend line drawn from the low of the 11th of July. As a result, I see a positive overall picture.
• Support: 1.2550 (S1), 1.2370 (S2), 1.2275 (S3)
• Resistance: 1.2700 (R1), 1.2800 (R2), 1.2900 (R3)
• Gold continued falling on Monday and managed to trade below the psychological line of 1200 (S1), which stands close to the 76.4% retracement level of the 2nd – 22nd of January advance. Nevertheless, the bears were not strong enough to continue the ride down towards our support bar of 1185 (S3). The metal hit support at 1190 (S2) and rebounded to trade again above 1200 (S1). In any case, the price structure on the 4-hour chart still suggests a near-term downtrend, but bearing in mind that there is positive divergence between our short-term oscillators and the price action, I would prefer to take to the sidelines for now. On the daily chart, the move below the neckline of the inverted head and shoulders completed on the 12th of January erased the hopes of the bulls for a rebound near the neckline and strengthened the likelihood for further declines in the not-too-distant future.
• Support: 1200 (S1), 1190 (S2), 1185 (S3)
• Resistance: 1222 (R1), 1238 (R2), 1245 (R3)
• WTI continued its drop yesterday, breaking below the psychological area of 50.00 (R1) and hitting support at 48.65 (S1). The price structure on the 1-hour chart remains one of lower highs and lower lows within the black downside channel Therefore, I would expect to see another leg down and another test near 48.65 (S1). A clear move below that line could pull the trigger for the 47.40 (S2) hurdle, marked by the low of the 5th of February. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Moreover, the 14-day RSI turned down and fell below its 50 line, while the daily MACD has topped and appears able to move below both its zero and signal lines in the near future. These signs show that the momentum is getting negative again and magnify the case for further declines, at least in the short run.
• Support: 48.65 (S1), 47.40 (S2), 46.65 (S3)
• Resistance: 50.00 (R1) 51.30 (R2), 52.15 (R3)
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IronFX Daily Commentary 25/02/15
Language English
• Market takes Yellen’s comments as dovish = USD-negative The FT headlined that “Fed paves the way to raise rates this year as US economy strengthens.” The New York Times said “Fed’s Janet Yellen, in Testimony, Counsels Patience on Interest Rate Increase.” Which is it? Perhaps the conflicting headlines reflect the relatively balanced outlook that Fed Chair Janet Yellen presented. In any case, after an initial burst, the market decided that the NYT’s interpretation was more accurate. Fed funds rate expectations fell a large 11 bps in the long end and 10-year bond yields fell 6 bps (13 bps from their peak) to back below 2.0% as the market pushed back expectations of when the Fed might tighten.
• The key points were that she repeated that the “patient” terminology “means that the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings” and that they would drop the “patient” phrase before raising rates. Concretely, this means at the earliest they could drop the phrase at the March meeting and start raising rates in June. At the same time she emphasized that dropping the “patient” phrase does not mean that they will necessarily start raising rates “in a couple of meetings,” but rather just “that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting.” In other words, after they drop the “patient” phrase, then we are back to watching the data and deciding meeting-by-meeting. This important phrase was seen as diluting the forward guidance somewhat and caused the change in view on interest rates. Moreover, Yellen also emphasized that the continued low level of inflation might still push back the timing of the liftoff, and she said that they were looking at all measures of inflation, including food and energy, not just core PCE. Thus the dovish interpretation.
• At the end of the day, the bond market seemed more interested in the testimony than the FX market. The day’s 0.61% range on EUR/USD was below the average 0.83% range for the last six months, while the 0.93% range in USD/JPY was exactly average. So no big fireworks. The main movements were in CAD, NZD and AUD, but for other reasons – see below. Nonetheless, I think the testimony could dampen demand for the dollar somewhat. True, the US and UK remain the only major countries where a rate hike is being contemplated, but clearly a lot now depends on inflation, and the global trend is for inflation to remain soft. So while I think USD is still on an uptrend, it may not rise as quickly as I had expected, unless US wages start to rise significantly. In that respect, the recent move by Walmart to raise wages could be even more important than Yellen’s testimony.
• Read the text at www.federalreserve.gov/newsevents/testimony/yellen20150224a.htm
• Poloz sends rate expectations plunging Bank of Canada Gov. Stephen Poloz also spoke yesterday and he was definitely dovish. He said the BoC’s surprise cut in rates last month has bought the central bank some time to see how the economy develops. This caused investors to back off from their assumption that BoC might cut rates again at the March 4th meeting, and CAD strengthened as a result. While the timing of the next cut was pushed back, the market is still assuming that the next move in Canadian rates is another cut – something Poloz confirmed by saying that BoC still has “more firepower” -- and so I expect CAD to remain under pressure, especially as oil prices remain under pressure too.
• Eurozone accepts Greece’s proposals The Eurozone finance ministers accepted Greece’s reform proposals, which now go to the various national parliaments for approval. This is likely. However, the ministers warned that Greece may be too optimistic about how quickly it can boost tax revenues. The Greek government now faces the difficult task of negotiating those tax increases, which might make some voters wonder just what kind of a “victory” their new government achieved in its negotiations with the troika – now known as the “institutions.” Moreover, there is still some uncertainty over the government’s cash position, which the press says will be exhausted in a few weeks. Greece may fade from the headlines for now but we certainly haven’t heard the last of it as a market factor.
• China’s preliminary HSBC/Markit PMI for February bounced back to 50.1, just above the boom-or-bust line of 50. This caused a jump in AUD and NZD when it came out. However, the figure may have been distorted by the Chinese New Year. With domestic activity sluggish and external demand uncertain, I question how far the measure can rebound and therefore how much support the commodity currencies are likely to get from this source. As mentioned yesterday, the Baltic Dry Index suggests demand for commodities is quite low at this time.
• Today’s highlights: During the European day, we get France consumer confidence for February. In Sweden, Riksbank publishes the minutes from its February policy meeting where it decided to cut the repo rate by 10 bps to -0.10%, adjust the repo-rate path down a bit and to introduce a “mini-QE” to make monetary policy more expansionary. Given the fact that the Bank can unexpectedly introduce further easing measures at any time, SEK is likely to remain under selling pressure.
• In Norway, AKU unemployment rate for December is expected to remain unchanged from the previous month, compared to the increase in the official unemployment rate for the same month. Therefore, we could see an increase in the AKU unemployment rate as well that could weaken NOK somewhat.
• In the US, Yellen testifies again, this time to the House of Representatives. It will be the same speech as on Tuesday, thus the focus will be on the questions. As for the indicators, new home sales for January are coming out.
• In New Zealand, trade deficit is expected to remain more or less at the same levels.
Currency Titles:
EUR/USD virtually unchanged after Yellen’s remarks
NZD/USD shoot up on China’s HSBC PMI
EUR/JPY could still extend lower
Gold hits again support at 1190
WTI finds again support near 48.65
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Currencies Text:
• EUR/USD traded virtually unchanged after Fed Chair Yellen suggested that the Fed will not rush into hiking rates and that they will consider such a move on a “meeting-by-meeting” basis after they change the guidance. The rate continues to oscillate between the key support line of 1.1260 (S1) and the resistance of 1.1540 (R2), thus I still consider the short-term path of the pair to be to the sideways. Today Yellen testifies again, this time to the House of Representatives. Her speech will be the same as yesterday, so the market will focus on what questions she receives. If we get no new information, the rate is unlikely to exit the sideways range. With regards to the broader trend I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. Nevertheless, I will maintain the view that only a break below 1.1260 (S1) could turn the bias back to the downside and perhaps open the way for another test at 1.1100 (S2), defined by the low of the 26th of January.
• Support: 1.1260 (S1), 1.1100 (S2), 1.1025 (S3)
• Resistance: 1.1450 (R1), 1.1540 (R2), 1.1650 (R3)
• NZD/USD surged during the Asian morning Wednesday after China’s flash HSBC manufacturing PMI inched above the 50-point line. The rally came after the pair hit support slightly below the 0.7450 (S2) obstacle and drove the battle above the 0.7500 (S1) figure again. The price structure on the 4-hour chart still suggests a short-term uptrend, and as a result, I would expect another test at 0.7575 (R1), the high of the 18th of February, or at the 0.7625 (R2) barrier, which stands close to the 61.8% retracement level of the 15th of January – 3rd of February decline. Nonetheless, in the bigger picture, I still believe that the overall trend is negative. Consequently, I would treat the recovery from 0.7175 as a corrective phase, at least for now.
• Support: 0.7500 (S1), 0.7450 (S2), 0.7340 (S3)
• Resistance: 0.7575 (R1), 0.7625 (R2), 0.7700 (R3)
• EUR/JPY moved in a consolidative manner on Tuesday, staying between the support line of 133.80 (S1) and the resistance of 136.20 (R1). Taking a look at our momentum studies, I still expect the pair to trade lower and perhaps challenge again the 133.80 (S1) zone. The RSI is back below its 50 line and is pointing down, while the MACD stands below both its zero and signal lines. If the bears are strong enough to drive the battle below the 133.80 (S1) area, I would expect them to challenge the next obstacle at 132.30 (S2). On the daily chart, we see that the strong recovery from 130.00 remained limited near the 38.2% retracement level of the 29th of December – 26th of January plunge. Hence, I would still see that recovery as a corrective phase.
• Support: 133.80 (S1), 132.30 (S2), 130.00 (S3)
• Resistance: 136.20 (R1), 137.65 (R2), 139.35 (R3)
• Gold slid yesterday, but hit again support at 1190 (S1) and shot up to trade above 1200. Yesterday’s move confirmed the positive divergence between both our short-term oscillators and the price action, and also my choice to stay flat despite the negative short-term trend. The picture is still negative and I would expect the metal to eventually extend its declines. But I would prefer to wait for momentum and price action to confirm each other before getting again confident on the down path. On the daily chart, gold stays below the neckline of the inverted head and shoulders completed on the 12th of January. This supports the negative outlook and strengthens the likelihood for further declines in the not-too-distant future.
• Support: 1190 (S1), 1185 (S2), 1170 (S3)
• Resistance: 1210 (R1), 1222 (R2), 1238 (R3)
• WTI slid on Tuesday to challenge once again the support zone of 48.65 (S1). The price structure on the 1-hour chart remains one of lower highs and lower lows within the black downside channel, and therefore a clear move below the aforementioned support hurdle could pull the trigger for the 47.40 (S2) barrier, marked by the low of the 5th of February. However, taking a look at our momentum oscillators, there is positive divergence between them and the price action, something that reveals slowing downside momentum. That’s why I would rely again on the near-term downtrend only upon a dip below 48.65 (S1). On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages. Moreover, the 14-day RSI turned down and fell below its 50 line, while the daily MACD has topped and fallen below both its zero and signal lines. These signs confirm the short-term down path and amplify the case that a dip below 48.65 (S1) in the not-too-distant future is likely.
• Support: 48.65 (S1), 47.40 (S2), 46.65 (S3)
• Resistance: 50.00 (R1) 51.30 (R2), 52.15 (R3)
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IronFX Daily Commentary 26/02/15
Language English
Oil prices surgeOil prices surged yesterday after Saudi oil minister Ali Al-Naimi said that demand is growing and the market has turned “calm.” Personally I can’t understand why people listened to him talk his book when the US Department of Energy figures out the same day showed US inventories soaring by 8.4mn barrels during the latest week, double the 4.0mn barrels that was expected (and above the previous week’s 7.7mn). This is not the first time that oil prices have bottomed shortly after the figures came out and surged afterwards. I can’t explain it, but I don’t think it represents a fundamental change in the supply/demand picture. My guess is it was simply a technical move and as the oversupply still exists, I would remain cautious. Nonetheless, it is true that gasoline prices have stopped falling in the US (see below) and sales of larger cars have taken off, so it may be that demand is starting to respond to prices.
Some good news in Europe Yesterday’s European news was fairly good – French consumer confidence rose and the number of job seekers fell. ECB Chief Economist Peter Praet said the timing of QE is favourable to maximize its effect because it was pro-cyclical – the chances are that the ECB may raise its growth forecast. Added to the acceleration in Germany GDP growth and we may be in for a period of stability at least and perhaps even modest growth in the Eurozone. Given that the ECB is already implementing extraordinary easing measures, the pick-up in growth suggests the Bank may be on hold for quite some time. ECB meetings were the driving force for moves in EUR/USD last year but it’s unlikely to play that role again this year. That suggests slower movement in EUR/USD and even more focus on the Fed.
Australian capex disappoints Australia’s private capital expenditure for Q4 fell 2.2% qoq in 4Q, more than the 1.6% decline that was expected. AUD weakened as a result. NZD managed to shrug off the news that Fonterra maintained its 2014/15 milk payout forecast, disappointing those who had expected an increase. It noted that although dairy prices have risen, they haven’t risen enough to raise the forecast.
Today’s highlights: During the European day, Eurozone’s M3 money supply is forecast to have risen 3.7% yoy in January, a slight acceleration from 3.6% yoy in December. The 3-month moving average is expected to accelerate if the forecast is met. This may also be the month when total lending finally turns positive on a year-on-year basis; it was down only 0.5% yoy in December as the growth in borrowing by financial companies almost (but not quite) offset the decline in borrowing by households and non-financial companies. The bloc’s final consumer confidence for February is due out. The German GfK consumer confidence for March and unemployment rate for February are also coming out.
In the UK, the 2nd estimate of Q4 GDP is expected to show a +0.5% qoq pace of growth, in line with the preliminary estimate, confirming a modest slowdown in the country’s growth momentum towards the end of 2014.
In the US, the headline CPI for January is expected to fall into deflation for the first time since October 2009. On the other hand, the core CPI rate is expected to remain unchanged in pace, indicating that the fall in the headline figure is mostly caused by low energy prices. This is not going to worry the Fed; on the contrary, Fed Chair Yellen yesterday argued that most of the decline in oil prices reflects “increased global supply rather than weaker global demand” and said that “it will likely be a significant overall plus, on net, for our economy.” She therefore does not seem particularly worried by the fall in core PCE and indeed noted that it would probably decline further “before rising gradually toward 2% over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.” In fact, gasoline prices have stopped falling in the US and are now up some 15% from the low a month ago, so the Fed seems correct (so far) in looking through these effects. She also noted that inflation expectations “have thus far remained stable.” Even though Fed Chair Yellen mentioned that the Fed follows closely the core PCE inflation measure, investors may focus on the drop in the CPI, which could weaken USD a bit.
Durable goods for January are also coming out. The headline figure and durable goods excluding transportation equipment are both estimated to rebound from the previous month, which could ameliorate the impact of a further slowing in inflation. Initial jobless claims for the week ended Feb. 21 are also due out.
In Canada, CPI for January is expected to decelerate from the previous month and fall below the Bank’s lower boundary of 1%-3% target range. In the meantime, the core CPI is expected to slow a bit remaining however in between the target range. Recently, Bank of Canada Deputy Governor Agathe Cote said that the plunge in energy prices could send Canadian CPI into negative territory for a brief interval. It should however bottom out in Q2. Therefore, the market is expecting for further declines in the CPI rate that could keep CAD under selling pressure.
From New Zealand, we get the building permits for January.
We have one speaker on Thursday’s agenda: Bank of England Deputy Governor Minouche Shafik speaks.
Currency Titles:
EUR/USD continues trendless
GBP/USD pops above 1.5500
USD/JPY oscillates in a narrow range
Gold trades virtually unchanged
WTI shoots up after finding again support near 48.65
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EUR/USD continued to trade quiet on Wednesday, still trading between the key support line of 1.1260 (S1) and the resistance of 1.1540 (R2). Today, we get the US CPI for January, which is expected to have fallen into deflation. This could push EUR/USD higher, but not high enough to exit its range and give directional signals, I believe. On that account, I would hold my flat stance as far as the short-term picture is concerned. With regards to the broader trend I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. Nevertheless, I maintain the view that only a break below 1.1260 (S1) could turn the bias back to the downside and perhaps open the way for another test at 1.1100 (S2), defined by the low of the 26th of January.
• Support: 1.1260 (S1), 1.1100 (S2), 1.1025 (S3).
• Resistance: 1.1450 (R1), 1.1540 (R2), 1.1650 (R3).
GBP/USD continued to race higher yesterday, breaching the psychological barrier of 1.5500 (S1). I believe that the break will encourage the bulls to accelerate higher and perhaps challenge the 1.5590 (R1) resistance hurdle. A clear break above that level could prompt extensions towards 1.5675 (R2). Our short-term oscillators corroborate my view and detect accelerating upside speed. The RSI just poked its nose above its 70 line, while the MACD lies above both its zero and signal lines. On the daily chart, the rate managed a daily close above the 80-day exponential moving average for the first time after the 29th of July. It is worth noting that the 80-day EMA still coincides with the 1.5500 zone. As a result, I’ve turned bullish with regards to the medium trend as well as the short term.
• Support: 1.5500 (S1), 1.5400 (S2), 1.5350 (S3).
• Resistance: 1.5590 (R1), 1.5675 (R2), 1.5750 (R3).
USD/JPY edged somewhat higher yesterday, but remained stuck within a narrow range below the psychological figure of 120.00 (R2), between the barriers of 118.40 (S1) and 119.35 (R1). The sideways mode of the rate is also confirmed by our short-term technical studies. Both the 50- and 200-period moving averages point sideways, while both our oscillators gyrate around their neutral lines, pointing east as well. However, on the daily chart the rate is still trading above both the 50- and the 200-day moving averages and above the upper line of the triangle pattern that had been containing the price action since November. This keeps the major upside path intact, but I would like to see a break above the resistance of 120.75 to be convinced that the longer-term uptrend is back in force.
• Support: 118.40 (S1), 118.00 (S2), 117.60 (S3).
• Resistance: 119.35 (R1), 120.00 (R2), 120.50 (R3).
Gold slid yesterday, hit support one dollar above the psychological level of 1200 (S1) and rebounded to trade again around 1210 (R1), virtually unchanged. The picture is still negative and I would expect the metal to eventually extend its declines. But given that there is still positive divergence between both our short-term oscillators and the price action, I would prefer to wait for momentum and price action to confirm each other before getting again confident on the down path. On the daily chart, gold stays below the neckline of the inverted head and shoulders completed on the 12th of January. This supports the negative outlook and strengthens the likelihood for further declines in the not-too-distant future.
• Support: 1200 (S1), 1190 (S2), 1185 (S3).
• Resistance: 1210 (R1), 1222 (R2), 1238 (R3).
WTI hit support again near the 48.65 (S2) zone and shot above 50.00 (S1) again, confirming the positive divergence between the near-term momentum studies and the price action. Nevertheless the price was halted marginally below the 51.30 (R1) resistance hurdle and thereafter retreated somewhat. Although I would expect WTI to continue lower and challenge the 50.00 (S1) zone as a support this time, the possibility for a higher low near that psychological zone is high. As a result, I would consider the short-term bias to have shifted to the upside. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages, keeping the longer-term downtrend intact. I would treat any possible near-term upside extensions as a corrective move before the bulls pull the trigger again.
• Support: 50.00 (S1), 48.65 (S2), 47.40 (S3).
• Resistance: 51.30 (R1) 52.50 (R2), 52.40 (R3) .
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IronFX Daily Commentary 27/02/15
Language English
Dollar recovery begins After several weak days following Fed Chair Janet Yellen’s testimony to Congress, the dollar turned around yesterday and gained against all the other G10 currencies and most of the EM currencies that we track. It started strengthening after St. Louis Fed President James Bullard said the Fed should remove “patient” from its statement in March. The dollar gained even more after the core US CPI rate for January came out higher than expected at the same pace as in December (+0.2% mom, +1.6% yoy) suggesting that indeed low energy prices are the main reason behind the slowdown in inflation, as Yellen argued in her testimony. Moreover, the slight deflation in the headline CPI boosted real average earnings, which rose a solid 1.2% mom, which bolsters the Fed’s case that the labor market is improving. Fed funds rate expectations rose 5 bps in the long end and 10-year Treasury yields rose about 10 bps from the lows to once again top 2.0%.
The euro moved lower and many euro bears, who had pared risk and were waiting for the signal to jump back in, decided that the time was right to re-establish their short euro positions. Market participants have probably noticed that the recent pattern is that when the euro falls sharply, it does not recover to its previous level, so they probably figure it’s best to get in at the top of the move rather than waiting for the bounce.
Eurozone economic news yesterday was favourable, with the number of unemployed persons in Germany falling more than expected, consistent with the rise in consumer confidence also reported. Also bank lending, which bottomed out in August, continued to grow modestly. But EUR/USD has not been that responsive to European economic news recently, particularly news about growth, probably because there’s no indication that faster growth will translate into higher inflation and thereby influence ECB policy.
Meanwhile, the fact that Bund yields are now negative out to seven years is probably discouraging investment in European bonds. Portuguese yields are below Treasuries out to 10 years! It’s likely that there is some measure of capital flight from Europe as real money bond investors are probably not comfortable at such levels. Equities are another matter, with the Eurostoxx 50 up 13.6% so far this year in local currency terms (5.3% in USD terms) and the S & P 500 up only 2.5%. However I would expect that most of these flows would be currency hedged, for obvious reasons.
Greece confirms reports of capital flight The monthly data on bank deposits from Greece confirms the rumors of capital flight during the recent debt negotiations. Private sector bank deposits fell EUR 12.3bn or 7.7% during the month, a record either way you look at it. This demonstrates why a “Grexit” would be so difficult for the Eurozone as a whole. If Greece did leave, we’d probably see a similar response by savers in other troubled countries, which could spell disaster for the European banking system.
Oil fell sharply on a report in the Wall Street Journal that Iran and the six major powers were nearing an accord over Iran’s nuclear efforts. That would allow some 700k bbl/d of oil into the market, adding to the already-huge glut of oil. However, US Senate Foreign Relations Committee Chairman Bob Corker said he would introduce legislation giving Congress the power to review any nuclear deal with Iran. This makes it much less likely that any deal would get US approval. That doesn’t mean I'm bullish on oil, but there could be somewhat of a bounce today. The technical say the same thing (see below).
Japan’s data shows some recovery The usual end-of-month data deluge from Japan showed that output is recovering, but not because of domestic demand. Industrial production was up a faster-than-expected 4.0% mom, the biggest jump in four years, but retail sales were down a greater-than-expected 1.3% mom and household spending fell. This combination is likely to convince the authorities that export demand is essential and help to keep them firmly in the weak-yen camp, contrary to recent comments (ahead of the elections in April) that they are concerned about the impact of the weak yen on consumers. Meanwhile, the inflation rate was largely unchanged, meaning no immediate reason for the BoJ to get more concerned (or less concerned, either).
Today’s highlights: During the European day, German CPI for February 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. Spain and Italy’s inflation rates are also coming out; both are expected to remain in deflation.
In Sweden, Q4 GDP is expected to show an expansion from Q3, which could strengthen SEK a bit.
In Norway, the official unemployment rate for February is coming out.
In the US, the 2nd estimate of Q4 GDP is expected to be revised lower. The 2nd estimate of the core personal consumption index, the Fed’s favorite inflation measure, is forecast to confirm the initial estimate. The Chicago Purchasing managers’ index and the final University of Michigan consumer sentiment for February are coming out. Pending home sales for January are expected to rise, a turnaround from the previous month. The decline in existing home sales on Monday suggest that pending home sales could miss expectations.
As for the speakers: Fed Vice Chairman Stanley Fischer, New York Fed President William Dudley, Cleveland Fed President Loretta Mester, ECB Vice President Vitor Constancio and Bank of Japan Deputy Governor Hiroshi Nakaso participate in the US Monetary Policy Forum.
Currency Titles:
EUR/USD plunges below 1.1260
AUD/USD tumbles after finding resistance around 0.7900
EUR/JPY breaks below 133.80
Gold hits resistance near 1222
WTI erases Wednesday’s gains
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Currencies Text:
EUR/USD plunged on Thursday after the core CPI rose by more than anticipated in January, proving that the dip of the headline rate into negative territory is mainly due to lower oil prices. The rate fell below the key support line (turned to resistance) of 1.1260 (R1), which shifts the bias back to the downside in my view and could open the way for another test of 1.1100 (S2), defined by the low of the 26th of January. Nevertheless, in today’s agenda we have the 2nd estimate of the US GDP for Q4, which is expected to show a lower rate of economic expansion than the initial forecast. This could cause a minor bounce, perhaps for a test around 1.1260 (R1), as a resistance this time. The RSI gives me an extra reason to be careful about such a bounce. The indicator exited its oversold territory and is now pointing north. With regards to the broader trend I believe that the pair is still in a downtrend. EUR/USD is printing lower peaks and lower troughs below both the 50- and the 200-day moving averages. A break below the 1.1100 (S2) line in the future could challenge our next support at 1.1025 (S3), defined by the high of the 1st of September 2003.
• Support: 1.1180 (S1), 1.1100 (S2), 1.1025 (S3).
• Resistance: 1.1260 (R1), 1.1390 (R2), 1.1450 (R3).
AUD/USD slid after hitting resistance fractionally above the 0.7900 (R2), but the decline was halted by the lower bound of the short-term black upside channel. Zooming to the 1-hour chart, I see that the 14-hour RSI edged higher after exiting its oversold field, while the hourly MACD has bottomed and appears ready to cross above its signal line soon. Taking these momentum signs into account, and given also our proximity to the lower bound of the channel, I would be careful that the forthcoming wave could be to the upside. However, considering the overall picture of the pair, I would not bet on that. On the daily chart, the break below the psychological round number of 0.8000 (R3) back on the 21st of January signalled the continuation of the longer-term downtrend. Therefore I would treat the recent recovery from 0.7640 (S2) as a corrective move and I would expect the bears to take the reins sooner or later. I still believe that we are going to see AUD/USD challenging the 0.7500 (S3) territory in the future.
• Support: 0.7750 (S1), 0.7640 (S2), 0.7500 (S3).
• Resistance: 0.7840 (R1), 0.7900 (R2), 0.8000 (R3).
EUR/JPY slide yesterday, reaching and breaking below support turned into resistance obstacle of 133.80 (R1). I would now expect sellers to pull the trigger for the 132.30 (S1) support zone. Our short-term oscillators detect negative momentum and magnify the case for the continuation of the down wave. The RSI slid towards its 30 line and could move below it in the close future, while the MACD stands below both its zero and trigger lines, pointing south. On the daily chart, we see that the strong recovery from 130.00 (S2) remained limited near the 38.2% retracement level of the 29th of December – 26th of January plunge. The recent decline supports my view to treat the aforementioned recovery as a corrective phase of the larger downtrend.
• Support: 132.30 (S1), 130.00 (S2), 129.25 (S3).
• Resistance: 133.80 (R1), 135.30 (R2), 136.20 (R3).
Gold moved higher yesterday, but after hitting resistance at the upper bound of a broadening formation, fractionally below the 1222 (R2) hurdle, it tumbled to trade back below the 1210 (R1) line. The picture is still negative in my view and I would expect the bears to eventually pull the trigger for larger declines. But given that there is still positive divergence between both our short-term oscillators and the price action, I would prefer to wait for momentum and price action to confirm each other before getting again confident on the down path. On the daily chart, gold stays below the neckline of the inverted head and shoulders completed on the 12th of January. This supports the negative outlook and strengthens the likelihood for further declines in the not-too-distant future.
• Support: 1200 (S1), 1190 (S2), 1185 (S3).
• Resistance: 1210 (R1), 1222 (R2), 1238 (R3).
WTI fell back below the round figure of 50.00 (R1) on Thursday. The price is now trading slightly above the key support barrier of 48.65 (S1) and looks ready to rebound. Our short-term oscillators corroborate that view. The RSI hit support near its 30 line and turned up, while the MACD has bottomed and appears ready to move above its trigger line any time soon. I would expect such a rebound to test once more the 50.00 (R1) zone. On the daily chart, WTI is still trading below both the 50- and the 200-day moving averages, keeping the longer-term downtrend intact. I would treat any possible near-term upside extensions as a corrective move before the bears pull the trigger again.
• Support: 48.65 (S1), 47.80 (S2), 46.65 (S3).
• Resistance: 50.00 (R1) 51.30 (R2), 52.50 (R3) .
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