IronFX - Market Analysis - page 48

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IronFX Daily Commentary | 24/04/15

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Slowing global growth The key theme this week has been the slowdown in global growth. At first it was just Asia. The week started out with the People’s Bank of China cutting its reserve requirement ratio by an unusually large 100 bps. The price of copper gapped higher at the opening Monday in response to the cut, but then trended lower for the rest of the week, indicating that investors decided that the RRR cut was aimed at bringing policy into line with the slowing growth prospects, rather than encouraging higher growth.

The RRR cut was followed by two unusual developments in Chinese finance: first Kaisa Group became the first Chinese real estate developer to default on a USD-denominated bond, then power-equipment maker Baoding Tianwei Group made history of a sort when it was the first-ever Chinese state-owned company to default on its debt. While both were small deals that had no economic impact, the message that policy makers sent was impossible to miss: China is going to allow a lot more companies to go to the wall. In the long term that’s necessary for the healthy development of the economy but in the short term it’s bound to be bad for growth.

Then on Thursday the HSBC Markit manufacturing PMI for China for April declined further into contractionary territory. At the same time, the Japan manufacturing PMI for April fell below 50 too, for the first time in nearly a year. The weakness continued into Europe, where the European flash PMIs fell instead of rising as expected. Both France and Germany missed expectations by a significant amount.

Finally, yesterday’s US indicators were also all around disappointing: jobless claims edged higher (for the week that the payrolls survey will be carried out), new home sales down sharply, Kansas City Fed index (which covers several oil-producing states) down for the fourth consecutive month and the US Markit PMI fell too. Fed funds rate expectations fell slightly and 10-year bond yields declined 2 bps, although stocks rose and the NASDAQ finally managed to regain the 5,000 level and make a new record high (its peak closing level during the internet bubble of 2000 was 5,048.62). Thus the pressure is really on for today’s US durable goods orders (see below) to demonstrate that yes, the US is still the global engine of growth. If durable goods disappoint too, USD would probably come under further selling pressure. On the other hand, given that so many indicators have disappointed and USD has declined, a positive surprise here would probably be the bigger shock to the market and send the currency up sharply. You can see from the graph, which shows the movement of EUR/USD in the 30 minutes after the release of the indicator, that the biggest move was on February, when the indicator surprised on the upside.

Currencies correlated with growth Meanwhile, I looked at what currency pairs are most closely correlated with the copper price, as a proxy for global growth. The table to the right is the result. (Correlation of one-week change over the last 10 years.) This analysis suggests that AUD and NZD are likely to weaken further. The central European currencies are also sensitive to growth. Note that the picture can be confused by the performance of oil, which rose yesterday on news of a Saudi air strike on Yemen (see technical section below). That explains why CAD, a growth-sensitive currency, was among the best performing currencies yesterday.

Jobless claims still consistent with above-200k NFP Although jobless claims edged higher yesterday, the four-week moving average is still only 285k, which is below the 305k for the March employment survey period. The historical relationship between the two since 2010 suggests the four-week moving average could move to 350k before the nonfarm payrolls would fall below 200k. Jobless claims below 300k seems fairly safe for NFP. As long as NFP is above 200k, expectations of Fed tightening will remain alive and the dollar should remain underpinned.

Get ready for a gold strike? The press reported yesterday that South Africa’s National Union of Mineworkers (NUM) plans to demand a 75% increase in the basic pay for entry-level workers. NUM represents 57% of the workers in the gold sector. Two weeks ago the union signed a three-year deal with Gold Fields that provided a 21% increase for the lowest-paid workers, but it still has to negotiate with several other companies that have two-year agreements expiring in June. I assume that employers would deny the extremely high demand (inflation in South Africa is only 4% yoy) and a strike could result. That would be bullish for the gold price.

Today’s highlights: During the European day, the main indicator will be the German Ifo survey for April. The overall strong ZEW indices on Tuesday increase the likelihood of robust Ifo indices as well. This could add to evidence that Eurozone’s growth engine is gathering steam, despite the weak preliminary manufacturing and service-sector PMIs on Thursday. The positive developments from low oil prices and a weaker euro is likely to slowly feed through the real economy going forward and could provide further support to domestic sentiment.

In the US, durable goods for March are coming out. The headline figure and durable goods excluding transportation equipment are estimated to have risen after both falling in February. The big thing would be if nondefense capital goods excluding aircraft orders, referred to as “core capital goods orders,” managed to rise. They’ve fallen for seven of the last eight months. If they rise, as some forecasters expect, that would be seen as the possible start of a turnaround in business investment and would be considered very bullish for the dollar.

The big event of the day is probably the informal meeting of EU finance ministers and central bankers where Greece’s progress in its reform pledges will be the main topic of discussion. Even though Greek Finance minister told to reporters earlier this week that there was a “convergence” with creditors, no deal is expected to come Friday and investors might have to wait until the formal meeting on 11th of May. Nonetheless, investors will want to hear what conclusion if any the officials reach about Greece and whether their patience is still holding up.

Separately, Swiss National Bank President Thomas Jordan speaks.

Currency Titles:

EUR/USD rebounds from 1.0660

GBP/JPY finds a halt at 180.40

USD/CAD plunges

Gold hits resistance at 1197

WTI climbs above 57.20

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Currencies Text:

EUR/USD rallied on Thursday after finding support at the 1.0660 (S2) area. Nevertheless, the surge was halted slightly below the 1.0860 (R1) barrier, near the 200-period moving average. Subsequently, the rate retreated somewhat. Although the rate is still trading below the lower line of the near-term upside channel, yesterday’s rebound confirmed my view to take the sidelines and wait for a break below 1.0660 (S2) to get confident on the downside. On the upside, a violation above 1.0860 (R1) would be necessary to shift the short-term bias back to the upside. Note that the 1.0860 (R1) barrier stands very close to the 61.8% retracement level of the 6th – 13th of April decline. A break above that resistance zone could set the stage for extensions towards 1.0965 (R2). Taking a look at our short-term oscillators, I see negative divergence between both of them and the price action. This gives me another reason to maintain my flat stance and wait for a move above 1.0860 (R1) to get confident on the upside. In the bigger picture, EUR/USD is still trading below both the 50- and the 200-day moving averages. However, a clear close below 1.0460 is needed to confirm a forthcoming lower low and trigger the resumption of the larger downtrend. On the other hand, a close above 1.1045 could signal the completion of a double bottom and perhaps set the stage for larger bullish extensions.

• Support: 1.0730 (S1), 1.0660 (S2), 1.0575 (S3)

• Resistance: 1.0860 (R1), 1.0965 (R2), 1.1045 (R3)

GBP/JPY traded somewhat lower on Thursday, after hitting resistance at 180.40 (R1). However, the pair is still trading within a short-term upside channel, and this keeps the short-term picture positive in my view. Taking a look at our oscillators though, I would be careful that further downside correction could be in the works before the bulls seize control again. The RSI exited its oversold territory and is now pointing down, while the MACD has topped and fallen below its trigger line. On the daily chart, the rate is back above both the 50-and the 200-day moving averages and this supports the continuation of the short-term uptrend. Our daily oscillators corroborate that view as well. The RSI emerged above its 50 line, while the MACD, already above its trigger line, just poked its nose above its zero line.

• Support: 179.30 (S1), 178.50 (S2), 177.55 (S3).

• Resistance: 118.40 (R1), 181.00 (R2), 181.75 (R3).

USD/CAD tumbled yesterday, falling below the support (now turned into resistance) of 1.2215 (R1) and reaching our 1.2145 (S1) hurdle. The plunge came after the pair hit resistance near 1.2300 (R1), which happens to be the 38.2% retracement level of the 13th – 17th of April fall, and confirmed my view that the outlook is negative and that the recovery from 1.2085 (S2) was just a corrective move. I would now expect the rate to continue lower and challenge again the 1.2085 (S2) line. As for the broader trend, the downside violation of the 1.2385 (R3) key barrier confirmed the negative divergence between our daily oscillators and the price action and turned the medium-term bias to the downside, in my view. I believe that we are likely to see the bears reaching the 1.2000 (S3) round figure in the not-too-distant future, which also happens to be the 38.2% retracement level of the July – March longer-term uptrend.

• Support: 1.2145 (S1), 1.2085 (S2), 1.2000 (S3).

• Resistance: 1.2215 (R1), 1.2300 (R2), 1.2385 (R3).

Gold rebounded on Thursday to hit resistance at 1197 (R1). However, the short-term picture remains somewhat negative in my view. Therefore, I would expect the forthcoming wave to be to the downside, perhaps for a test at 1180 (S1) this time. Looking at our short-term oscillators, I see that the RSI hit resistance at its 50 line and turned down, while the MACD appears to be finding resistance at its signal line. These signs support the case for a negative wave. A clear break below 1180 (S1) could prompt further bearish extensions, probably towards the 1165 (S2) obstacle. As for the bigger picture, the price is still trading below the 50% retracement level of the 22nd of January - 17th of March decline. This still makes me believe that the 17th of March – 06th of April recovery was just a corrective move and that we will see gold trading lower in the not-too-distant future.

• Support: 1180 (S1), 1165 (S2), 1150 (S3).

• Resistance: 1197 (R1), 1210 (R2), 1220 (R3).

WTI shot up yesterday after Saudi Arabia resumed bombing in Yemen. The price broke above the upper bound of a short-term downside channel. The violation of the 57.20 (S1) resistance (turned into support) signalled a forthcoming higher high and turned the short-term bias to the upside, in my view. However, our hourly momentum indicators show signs that a pullback could be in the works before the next leg north. The 14-hour RSI exited its overbought territory and is now headed towards its 50 line, while the hourly MACD has topped and fallen below its signal line. On the daily chart, I still see a positive medium term outlook. The break above 55.00 on the 14th of April signalled the completion of a double bottom formation, something that could carry larger bullish implications in the not-too-distant future. A possible move above 58.80 (R2), a resistance defined by the peak of the 16th of April, could open the way for the round figure of 60.00 (R3).

• Support: 57.20 (S1), 56.55 (S2), 55.75 (S3).

• Resistance: 58.00 (R1) 58.80 (R2), 60.00 (R3).

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IronFX Daily Commentary | 27/04/15

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US indicators disappoint again As I mentioned on Friday, investors are concerned that global growth – including the US – is slowing. The dollar bulls had hoped that the March US durable goods figure would disprove this theory, but in the event the figure was just as disappointing as the other recent US data. The headline figure rose nicely on aircraft and auto orders, but core orders (nondefense capital goods orders excluding transportation) were down once again. Many Wall Street economists downgraded their Q1 GDP forecasts based on the number. The Atlanta Fed’s GDPNow forecasting model for example was revised down 10 bps to +0.1%. The weaker GDP forecasts are likely to weigh on the dollar this week, particularly if today’s Dallas Fed index disappoints (see below). It seems the only rosy spot on the economic map is Europe, where the Ifo business climate index rose in April, suggesting the weak April PMI might have been a fluke.

Eurogroup meeting shows no progress with Greece Eurozone finance ministers met Friday and discussed Greece. How did the meeting go? Let’s ask Malta’s Finance Minister Edward Scicluna. He told Bloomberg, “I would describe today’s meeting as complete breakdown of communication with Greece.” As for the future, Eurogroup chairman Dijsselbloem noted “I don’t dare say whether there will be some kind of result” on Greece at the next Eurogroup meeting on May 11. “It seems too quick for me given the current situation. It can be achieved, but it’s starting to become theoretical.” Asked if there were a “plan B” for Greece if they couldn’t meet the lenders’ demands, German Finance Minister Schäuble said simply, "You shouldn't ask responsible politicians about alternatives," because of course they can never confirm them.

ECB President Draghi said the ECB would continue to supply emergency liquidity to Greek banks as long as the banks were solvent, but that they would discuss the size of the “haircut” on Greek collateral at the next Governing Council meeting on 6 May. It seems that the ECB may once again be put in the position of taking actions that the elected politicians can’t. They could simply declare that the Greek banks are insolvent and stop supplying ELA to them, which would effectively shut down the Greek banking system. This would be similar to what happened in Cyprus. Another possibility, which is beginning to look more likely, is that they start raising the haircut on collateral, which would limit the amount of ELA that Greece could get. That would also force a response from the Greek government, probably including capital controls, but it would make it easier to restart the financial system than if the banks are declared insolvent.

Don’t forget, what these discussions are about is just whether to give Athens the remaining €7.2bn of bailout funds that it’s owed under the terms of the previous agreements. That would not be enough to set the country on a sustainable path, because as Finance Minister Varoufakis frequently reminds us, there is no way the country can repay its debts while it’s in recession.

Iron ore price recovering The price of Australia’s iron ore exported to China has risen 17% since hitting bottom on April 10th. That’s probably one reason AUD has been doing a bit better recently, although the currency certainly hasn’t risen by 17%.

Today’s highlights: Today is a relatively light day. There were no major indicators release during Asian time and there are no major releases scheduled from Europe.

In the US, the only noteworthy indicators we get are the US preliminary Markit service sector PMI and Dallas Fed manufacturing index both for April. The Dallas Fed index is expected to rise. Given the region’s dependence on the oil industry, that would be quite an achievement. The index has already fallen for six months in a row. However, the recent rebound in oil prices suggests that it is indeed possible.

As for the speakers, ECB Vice President Vitor Constancio and ECB Executive board member Benoit Coeure speak. Norway central bank Governor Oeystein Olsen also speaks.

As for the rest of the week, many central banks hold their policy meetings. The spotlight will be on Wednesday when the Federal Open Market Committee (FOMC) meets. With no press conference scheduled or new forecasts at Wednesday’s meeting, the focus will be on the accompanying statement for any hint for the timing of the first rate hike. As mentioned in previous statements, an increase in the target range for the fed funds rate remains unlikely at April’s meeting. Therefore, no substantial change in the statement is expected at this meeting and the Committee may simply repeat that economic growth has moderated somewhat and that they continue to assess progress toward maximum employment and price stability. Other central bank meetings include Sweden’s Riksbank, also on Wednesday, and Bank of Japan (BoJ) and Reserve Bank of New Zealand (RBNZ) on Thursday. Sweden has said it remains in easing mode, and a majority of analysts expect a cut; estimates range from –0.35% to -0.5% (current rate: -0.25%). The BoJ is not likely to make any changes, but this week’s meeting brings new long-term forecasts in the semi-annual outlook report. If the report forecasts that it will take longer to return to 2% inflation, the Committee could use that as the trigger for an increase in stimulus, which would probably be JPY-negative. As for the RBNZ, although they recently signaled a shift towards an easing bias, the market expects no change at this week’s meeting and neither do we.

Other major indicators: On Tuesday, the UK 1st estimate of Q1 GDP is coming out. The forecast is for the growth rate to decelerate a bit despite the strong industrial production in January and February. On Wednesday, German CPI for March is coming out. Following the introduction of the quantitative easing program by the ECB, the inflation figures are not as market-affecting as before. In the US, the 1st estimate of Q1 GDP is expected to show that the US economy expanded at 1.0% qoq SAAR, a slower pace than 2.2% qoq in Q4 2014, according to the Bloomberg survey. However, as mentioned above many economists trimmed their forecasts so the published consensus figures may not reflect the most up-to-date thinking. The 1st estimate of the core personal consumption index, the Fed’s favorite inflation measure is also coming out. A weak reading could prove USD-negative. On Friday, during the Asian day, we have the usual end-of-month data dump from Japan, including the National CPI rate for March and the Tokyo CPI rate for April. The market reaction on these releases could be minimal as usual.

Currency Titles:

EUR/USD trades somewhat higher

AUD/USD touches the resistance line of 0.7840

GBP/JPY still within a positive channel

Gold finds support at 1175

WTI falls and hits support at 56.55

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Currencies Text:

EUR/USD traded somewhat higher on Friday, but found resistance around 1.0890 (R1). Although the rate is still trading below the lower line of the near-term upside channel, Friday’s move confirmed a forthcoming higher high and thus the short-term bias is to the upside, in my view. A clear move above 1.0890 (R1) is likely to target the next hurdle at 1.0965 (R2). Nevertheless, our short-term oscillators give evidence that a minor pullback could be in the works before the next leg up. The RSI hit resistance at its 70 line and turned down, while the MACD shows signs of topping and that it could move below its trigger soon. In the bigger picture, EUR/USD is still trading below both the 50- and the 200-day moving averages. However, a clear close below 1.0460 is needed to confirm a forthcoming lower low and trigger the resumption of the larger downtrend. On the other hand, a close above 1.1045 could signal the completion of a double bottom and perhaps set the stage for larger bullish extensions.

• Support: 1.0785 (S1), 1.0730 (S2), 1.0660 (S3).

• Resistance: 1.0890 (R1), 1.0965 (R2), 1.1045 (R3).

AUD/USD continued to trade higher and managed to touch the resistance of 0.7840 (R1), defined by the peak of the 17th of April. That move confirms by view that following the completion of the double bottom, the short-term bias of this pair is to the upside. A possible break above 0.7840 (R1) is likely to extend the bullish wave and perhaps target the next obstacle at 0.7880 (R2). Both of our oscillators sill stand above their respective upside support lines, supporting the near-term outlook. Moreover, the MACD stands above both its trigger and zero lines, indicating bullish momentum. However, the RSI has turned down, giving me a reason to be careful of a minor pullback before the next positive move. Although I believe we are likely to experience further upside extensions in the near term, I maintain my neutral view as far as the overall outlook is concerned. The rate is still trading between 0.7550 and 0.7900, the range it’s been in since the end of January. There is also positive divergence between our daily momentum indicators and the price action.

• Support: 0.7800 (S1), 0.7765 (S2), 0.7725 (S3).

• Resistance: 0.7840 (R1), 0.7880 (R2), 0.7900 (R3).

GBP/JPY raced higher on Friday, and managed to touch the resistance hurdle of 181.00 (R1), defined by the peak of the 18th of March. The pair is still trading within a short-term upside channel and this keeps the short-term picture positive in my view. A move above 181.00 is likely to set the stage for a test at 181.75 (R2). Nevertheless, looking at our oscillators, I would stay cautious that a pullback could be looming before buyers shoot again. The RSI slid after finding resistance slightly above its 70 line, while the MACD has topped and fallen below its signal line. There is also negative divergence between both these indicators and the price action. On the daily chart, the rate is back above both the 50-and the 200-day moving averages and this supports the continuation of the short-term uptrend. Our daily oscillators corroborate that view as well. The RSI continued higher after crossing its 50 line, while the MACD, already above its trigger line, just poked its nose above its zero line.

• Support: 180.00 (S1), 179.30 (S2), 178.50 (S3).

• Resistance: 181.00 (R1), 181.75 (R2), 183.00 (R3).

Gold tumbled on Friday, hit support at 1175 (S1) and subsequently rebounded somewhat. As long as the metal is trading within the black downside channel, the short-term picture remains negative, in my view. Our short-term oscillators stand below their respective downside resistance lines, supporting the notion. However, the RSI rebounded from its 30 line and now points up, something that leaves the door open for the continuation of the current corrective bounce before the bears seize control again, perhaps above the resistance hurdle of 1186 (R1). As for the bigger picture, the price traded lower after hitting the 50% retracement level of the 22nd of January - 17th of March decline. This still makes me believe that the 17th of March – 06th of April recovery was just a corrective move and that we will see gold continue trading lower in the not-too-distant future.

• Support: 1175 (S1), 1165 (S2), 1150 (S3).

• Resistance: 1186 (R1), 1197 (R2), 1210 (R3).

WTI slid on Friday. It fell below the 57.35 (R1) line and hit support at 56.55 (S1). Subsequently, it rebounded to test the 57.35 (R1) zone as a resistance. Given that the aforementioned activity printed a lower high on the 1-hour chart, I would expect the forthcoming wave to be negative. A decisive dip below the 56.55 (S1) hurdle is likely to prompt extensions towards the next support barrier of 55.75 (S2). Taking a look at our momentum studies, I see that the RSI hit resistance at its 50 line and turned down, while the MACD, already below its trigger, obtained a negative sign. These signs corroborate my view that the next move is likely to be down. However, on the daily chart, I still see a positive medium term outlook. The break above 55.00 on the 14th of April signalled the completion of a double bottom formation, something that could carry larger bullish implications in the not-too-distant future. Therefore, I would treat any further downside extensions as a corrective move, at least for now.

• Support: 56.55 (S1), 55.75 (S2), 55.00 (S3).

• Resistance: 57.35 (R1) 58.00 (R2), 58.80 (R3).

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IronFX Daily Commentary | 28/04/15

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Dallas Fed survey disappoints Those who were hoping for signs of recovery in the US were disappointed yesterday when the Dallas Fed survey for April just barely rose. Given the recovery in oil prices over the last month, people were hoping for more. Furthermore, the Markit service sector PMI disappointed and the composite PMI fell too, albeit both remain solidly in expansionary territory. Nonetheless those who believe in a robust US economy are going more on faith than on facts nowadays. As a result the dollar slipped against most currencies, particularly the EM currencies as commodities jumped (see China section below). Oddly enough Fed funds futures rate expectations edged a bp or so higher anyway, limiting the damage to USD. Wednesday’s Q1 GDP figure and FOMC meeting will decide the debate over growth and the dollar’s direction, at least for the short term.

Varoufakis sidelined The Greek government Monday changed the team negotiating with the country’s international creditors, after Finance Minister Varoufakis was called a “time-waster, a gambler and an amateur” by his EU peers on Friday. The administration has created a new “political negotiation team” that is to be “coordinated” by Alternate Foreign Minister Euclid Tsakalotos under Varoufakis’s leadership. The move was widely seen as an attempt to sideline Varoufakis, although of course the administration denied this and insisted that Varoufakis would remain in command. There were several other new teams and new leaders put in charge of various parts of the negotiations. It’s not clear what the impact will be, but relations between Greece and its creditors can hardly get worse. Apparently some people in Greece think they’re likely to improve as Greek bank stocks were up 9.3% yesterday. I would say the change is mildly EUR-positive, but it remains to be seen whether any group of people can reach agreement in time. Watch tomorrow’s ECB meeting to see what they decide about the haircut on collateral they require in exchange for ELA funds. That will reveal the official reaction.

Chinese QE on the way? Reuters reported yesterday that the Chinese government would soon initiate a round of “Chinese Quantitative Easing” with the People’s Bank of China (PBOC), the central bank, directly purchasing assets from commercial banks so as to support the upcoming CNY 1tn ($160bn) “local government debt swap program.” In fact this has nothing to do with QE except insofar as the central bank is buying assets from the private sector. QE is a monetary policy measure that central banks resort to when interest rates are down to zero and further easing of nominal rates is difficult. In China, the official policy rate (1-year benchmark lending rate) is 5.35%, quite high when compared with the CPI inflation rate of 1.4%, and the reserve requirement ratio (RRR) is 18.5% -- signifying pretty tight monetary conditions. If they wanted to loosen monetary policy further, they would be moving those rates, not buying bonds. In this instance, the PBOC is simply acting as lender-of-last-resort for local governments that are struggling to find new buyers under a new debt-swap regime that was initiated earlier this year to reform regional finances.

So while this is not stimulus at all, that didn’t stop investors from getting excited. Commodity prices soared on the initial news yesterday, although they later came back to reality. Copper and oil ended slightly lower, while precious metals held more of their gains. Further easing in China would tend to support the commodity currencies, particularly AUD. Nonetheless, I doubt if the authorities will ease enough to boost growth (as opposed to cushioning the decline) so I don’t think policy measures will change the long-term trend.

GBP gains as Conservatives gain Sterling continued to rise as polls showed the Conservatives gaining at the expense of the UK Independence Party (UKIP). I think this is a kneejerk reaction to the idea that right-wing is good for the economy, left-wing is bad. The past performance of the pound after elections has shown that this is not true at all as concerns the FX market. This time is likely to be no exception, in my view. The Conservatives probably wouldn’t raise taxes for wealthy people who don’t live in Britain all the time, but they would hold a referendum on whether to stay in the EU, and I think that would be a much bigger risk for GBP.

FOMC meeting: what to expect As we said yesterday, the big event of the week is Wednesday’s Federal Open Market Committee (FOMC) meeting. The Committee last month said it was “unlikely” to raise rates in April, and there is no press conference scheduled or new forecasts, so all we will have to go on will be the accompanying statement. The main question will be whether they think the current stream of sluggish data is simply a temporary “soft patch,” like in early 2014, or whether they think the US economy is undergoing a more significant downturn. This question will probably be answered in the first paragraph, which usually describes how the Fed sees the economy developing. So far most of the comments I’ve heard from members are that they do indeed think the sluggish data recently are due to the bad weather and port strike so I would expect to see comments about how the slowdown is likely to prove transitory. The second main point will be whether they see March’s smaller increase in nonfarm payrolls as an anomaly or a change in the trend. The stunning recovery in jobs and fall in the unemployment rate has allowed many members to feel they are near to meeting at least half of their dual mandate, so any comments about the labor market will be significant. Ditto for inflation, of course, the other half of the mandate. The key will be the sentence “the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of energy price declines and other factors dissipate.” Do they still see the labor market improving, and do they still believe the factors depressing inflation are transitory? Any change there would probably mean a significant delay in hiking rates. In fact since the March meeting, the outlook for US inflation has improved considerably: the US trade-weighted index against major currencies is down 2.4%, oil prices are up 16%, and the 5year breakeven inflation rate has risen to 1.71% from 1.33%. As for the international situation, that was discussed at some length in the press conference in March but received only cursory attention in the statement. I would not expect it to play a major part this time, either. If anything, the Eurozone is in better shape than in March, so the international background is more supportive of US growth than it was before.

How to play the FOMC Although the FOMC meetings are closely watched, in fact the Committee is quite good at telegraphing its moves and therefore we don’t necessarily get a lot of volatility on the day. Meetings over the last year or so have often seen below-average volatility in both EUR/USD and USD/JPY. This time especially, the statement is unlikely to contain any major surprises. Like in the UK, there may be more action when the minutes are released on 21 May and the details of the discussions are known.

The graph to the right from Bloomberg shows the movement of EUR/USD in the hour following the release for the last six meetings. The dotted line, which is the average, demonstrates that on average, nothing happens. But as you can see from the March meeting (the orange line), when they removed the “patient” phrase, and the October meeting (the light blue line), when they ended QE, there can be considerable volatility on the day.

Today’s highlights: During the European day, the main event will be the UK’s 1st estimate of Q1 GDP. The forecast is for the growth rate to decelerate a bit despite the strong industrial production in January and February and robust retail sales figures in Q1. A weak growth figure along with the zero inflation rate and the uncertain political outcome in the upcoming elections could result in rate hike expectations getting pushed back even further. This could put selling pressure on GBP. However, as the second reaction graph shows, this indicator has had surprisingly little impact on GBP/USD the last several times.

In France, consumer confidence index for April is coming out.

In , we get the economic tendency survey for April and retail sales for March. The first is likely to increase a bit reflecting an improved sentiment, while retail sales are expected to show another strong reading. Nevertheless, given the fact that the Riksbank is expected to cut rates at its Wednesday meeting, any setback in USD/SEK could be seen as a renewed buying opportunity.

In the US, only secondary importance data are due to be released. Conference Board leading index and Richmond Fed manufacturing activity index both for April are coming out. S & P/Case-Shiller house price index for February is also due out.

As for the speakers, Bank of Canada Governor Stephen Poloz and ECB Governing Council member Jens Weidmann speak.

Currency Titles:

EUR/USD continues a bit higher

NZD/USD hits resistance at 0.7660

EUR/GBP hits resistance at 0.7170 and slides

Gold rallies towards 1200

WTI breaks below 56.55

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Currencies Text:

EUR/USD continued to trade higher, but hit resistance at 1.0910 (R1). The near-term bias stays positive in my view, therefore I still expect the bulls to target the 1.0965 (R2) line in the near future. Nevertheless, our short-term oscillators still give evidence that a minor pullback could be in the works. The RSI turned down after hitting resistance near its 70 line, while the MACD has topped and could cross below its trigger line soon. In the bigger picture, EUR/USD is still trading below both the 50- and the 200-day moving averages. However, a clear close below 1.0460 is needed to confirm a forthcoming lower low and trigger the resumption of the larger downtrend. On the other hand, a close above 1.1045 (R3) could signal the completion of a double bottom and perhaps set the stage for larger bullish extensions.

• Support: 1.0830 (S1), 1.0785 (S2), 1.0730 (S3).

• Resistance: 1.0910 (R1), 1.0965 (R2), 1.1045 (R3).

NZD/USD traded higher on Monday, but hit resistance near 0.7660 (R1) and retreated somewhat. Taking into account that on the 15th of April, the rate exited a possible triangle formation, and that the rate is still trading above the upper line of that pattern, I would consider the short-term bias to be positive. A clear move above the 0.7660 (R1) zone is likely to set the stage for the key resistance line of 0.7740 (R2), defined by the peaks of the 17th and 22nd of April. Nevertheless, if we look at our short-term oscillators, I see signs of a possible corrective move before the next leg up. The RSI turned down and could move below 50 soon, while the MACD, already negative, shows signs that it could top and fall below its signal line. On the daily chart, a close above 0.7740 (R2) could confirm a forthcoming higher high and perhaps turn the medium term picture positive.

• Support: 0.7600 (S1), 0.7550 (S2), 0.7500 (S3).

• Resistance: 0.7660 (R1), 0.7740 (R2), 0.7785 (R3).

EUR/GBP traded lower on Monday after hitting resistance at 0.7170 (R1). I still expect the rate to trade lower and challenge the support barrier of 0.7100 (S2). After the completion of a double top formation back on the 13th of April, the picture has turned negative in my view. Our short-term oscillators support the short-term picture. The RSI moved lower after hitting resistance near its 50 line, while the MACD, already negative, has fallen below its trigger line. However, today, the 1st estimate of the UK GDP for Q1 is expected to show a slowdown. This could trigger an upside corrective move before the bears take control again. On the daily chart, the completion of the double top confirms that the 11th of March – 3rd of April recovery was just a 38.2% retracement of the 16th December – 11th of March decline, and that the overall downtrend is gaining momentum again.

• Support: 0.7120 (S1), 0.7100 (S2), 0.7065 (S3).

• Resistance: 0.7170 (R1), 0.7220 (R2), 0.7275 (R3).

Gold shot up yesterday, breaking above the resistance (now turned into support) of 1197 (S1) and the upper bound of a near-term upside channel. This shifts the short-term picture somewhat positive, and makes me believe that we are likely to experience a test of 1210 (R1) soon. A break above there could extend the bullish wave, perhaps towards the next resistance at 1220 (R2). Both of our short-term oscillators have crossed above their respective upside resistance lines, supporting the idea that further upside could be on the cards. What is more, the RSI edged higher after crossing above its 50 line, while the MACD, already above its trigger, just obtained a positive sign. As for the bigger picture, yesterday’s rally brings into question my view that we could see the metal trading lower in the not-too-distant future. As a result, I would take to the sidelines as far as the overall picture is concerned.

• Support: 1197 (S1), 1186 (S2), 1175 (S3).

• Resistance: 1210 (R1), 1220 (R2), 1235 (R3).

WTI tumbled on Monday, breaking below the support (now turned into resistance) barrier of 56.55 (R1). Given that this confirmed a forthcoming lower low on the 1-hour chart, I would hold the view that the short-term bias is negative. I would expect WTI to continue lower and to challenge the support line of 55.75 (S1). If the bears are strong enough to drive the battle below that line, I would expect them to pull the trigger for the psychological zone of 55.00 (S2). Taking a look at our momentum studies, I see that the RSI continued lower and is now approaching its 30 line, while the MACD stands below both its zero and signal lines. These signs corroborate my view that the decline is likely to continue. However, on the daily chart, I still see a positive medium term outlook. The break above 55.00 on the 14th of April signalled the completion of a double bottom formation, something that could carry larger bullish implications in the not-too-distant future. Therefore, I would treat any further downside extensions as a corrective move, at least for now.

• Support: 55.75 (S1), 55.00 (S2), 54.55 (S3).

• Resistance: 56.55 (R1) 57.35 (R2), 58.00 (R3).

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IronFX Daily Commentary | 29/04/15

Language English

The day of central banks Five of the G10 central banks meet in 24 hours! The spotlight today is on the Federal Open Market Committee (FOMC) meeting. I discussed that in detail yesterday and so will not bore you with it again, except to remind you that a) the main question will be whether they think the current stream of sluggish data is simply a temporary “soft patch,” like in early 2014, or whether they think the US economy is undergoing a more significant downturn, and b) whether they think the labor market is still improving and inflation still headed towards 2%.

What I expect: I think the Committee will have to acknowledge the softer data recently, but that they will once again attribute it to transitory factors and repeat their previous comments about how they expect to meet their goals of maximum employment and 2% inflation in the foreseeable future. I expect that they will want to leave themselves the option of raising rates in June even if that does not currently seem to be the most likely scenario. (The market consensus is currently that the first rate hike occurs in October, if we assume that the first rate hike puts the Fed funds rate at 0.25%.) At the end though they are likely to say that it all depends on the data – which is no different than what they’ve been saying recently anyway. I expect that this view will be seen as more hawkish than anticipated and that the dollar will firm up as a result.

Riksbank meeting Before the FOMC meeting, Sweden’s central bank holds it monetary policy meeting. At their last meeting, Riksbank decided to make monetary policy even more expansionary by cutting the interest rate by 15bps to -0.25%. It also said it would buy SEK 30bn in government bonds in a “mini-QE.” Even though the bank argued that inflation has bottomed out and is beginning to rise, the additional measures aimed to support the upturn in inflation and weaken the krona a bit. Given that Riksbank has said it is ready to take further expansionary measures if needed to ensure that inflation rises towards the target, I believe they could cut further at today’s meeting. There is an unusual dispersion in the market predictions, in part because no one knows any more how much they would cut now that rates are negative. Six out of 20 analysts see the rate remaining at -0.25%, while 14 expect a cut: five expect 10 bps (-0.35%), four expect 15 bps (-0.40%), and five expect 25 bps (-0.50%). The average and median are therefore around -0.35%. In any event, I expect further loosening and remain bearish on SEK.

ECB meeting on Greece The ECB holds its regular weekly meeting today. (I’m counting that as a central bank meeting too, although it is not a “monetary policy meeting.”) The main topic of discussion is likely to be the haircuts that it charges on Greek bank Emergency Liquidity Assistance (ELA) collateral. An increase in the haircut could be a significant tightening of conditions for the banks and a sign of increasing impatience on the part of the ECB. Enough of a change could effectively cap the amount of ELA funds, as it could exhaust the banks’ collateral. That could force Athens to move faster to avoid catastrophe. The banks’ liquidity position continues to be very strained even under current conditions. I expect no change after Athens recently shuffled its negotiating team to be friendlier to the EU.

Tsipras hints at a referendum Meanwhile, Greek PM Tsipras Tuesday hinted that he might call a referendum if an agreement with creditors falls outside his anti-austerity mandate. “If the solution offered goes beyond our mandate, it will have to be endorsed by the people,” he said in an interview on TV. He ruled out snap elections, however, saying there was no need for them. Eurogroup President Jeroen Dijsselbloem disapproved; he said a referendum would “create great political uncertainty” and that there wasn’t time for it. I see a referendum as the only way for Tsipras to gain the popular approval necessary to change his party’s position on agreeing with the creditors. Otherwise, the more left-wing members of SYRIZA might just support breaking off negotiations and defaulting. I therefore see this as EUR-positive.

Today’s highlights: As for the indicators, German CPI for March is coming out after several regional states release their data in the course of the morning. As usual, we will look at the larger regions for a guidance on where the headline figure may come in, as an indication for the near-term direction of EUR. That said, with the ECB on QE autopilot, neither the German CPI nor the Eurozone’s CPI to be released on Thursday are as market-affecting as before. Eurozone money supply for March and EU consumer confidence are also coming out.

The main indicator today is the first estimate of US Q1 GDP. The market consensus is +1.0% qoq SAAR, a slower pace than 2.2% qoq in Q4 2014. However, the consensus is based largely on forecasts made before Friday’s disappointing durable goods figure, which caused some firms to revise down their estimates. The Atlanta Fed’s GDP model for example is estimating an even lower 0.1% pace. The possibility of a disappointment seems high. The question is whether the market will assume this is like last year, when growth was weak in Q1 (-2.1%) but rebounded in Q2 (+4.6%), or whether they will think it’s a sign of some more fundamental problems with the economy. The first estimate of the core personal consumption index, the Fed’s favorite inflation measure is also coming out. A weak reading could prove USD-negative.

BoJ and RBNZ Then overnight we have two more central bank meetings: Bank of Japan (BoJ) and Reserve Bank of New Zealand (RBNZ).

The Bank of Japan has already admitted that the country will probably fall back into deflation later this year after the rise in the consumption tax falls out of the calculation. On top of that, Governor Haruhiko Kuroda last Thursday said in the Diet that achieving the 2% inflation target might take longer than expected, into the fiscal year that starts in April 2016. Further details and new long-term projections for growth and inflation are expected in the semi-annual Outlook for Economic Activity and Prices report, which will be released after the meeting. The previous (end-October) full report predicted that inflation will “reach around 2 percent around the middle of the projection period; that is, in or around fiscal 2015,” but the Board lowered that forecast to 1.0% in its interim assessment in January. The Nikkei has reported that the report may lower the forecast further to 0.5%-1%. It was such a change in the inflation forecast that triggered the surprise easing on 31 Oct last year. However, it’s probably the medium-term forecast that matters more. They are still forecasting inflation back at 2.2% in FY2016, showing that they expect to achieve their 2% goal. The key question is whether the bank will adjust its claim in the October report that the CPI is likely to “reach around 2 percent around the middle of the projection period; that is, in or around fiscal 2015.” Nonetheless, no action is likely at this meeting and hence the market reaction is likely to be limited. I would expect them to wait at least until July, when the results of this year’s wage negotiation should be known and the MPC members update their forecasts again. October is the favored month for the market.

As for the Reserve Bank of New Zealand, market expectations are for no change in rates at this meeting. Last time, they kept interest rates unchanged and signaled an extended period of steady interest rates. However, recent comments by RBNZ Assistant Governor John McDermott that weakening demand and domestic inflationary pressures would prompt the Bank to consider lowering interest rates signal a moderate shift towards an easing bias, in my view. The fall of inflation rate below the lower boundary of the range target amplifies the case for no rate increases this year. The March statement ended by saying “Our central projection is consistent with a period of stability in the OCR. However, future interest rate adjustments, either up or down, will depend on the emerging flow of economic data.” The focus tomorrow will be on whether they still see a period of stability and whether the risk of an up or down move is still evenly balanced. A formal shift to an easing bias, as seems likely to me, would probably weaken NZD, whereas maintaining the current neutral bias might cause it to strengthen.

Currency Titles:

EUR/USD finds resistance a few pips below 1.1000

GBP/JPY continues its near-term uptrend

AUD/USD breaks escapes from a 3-month sideways range

Gold shoots up once again

WTI rebounds from 56.10

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EUR/USD continued to climb higher on Tuesday. It broke above the resistance (now turned into support) of 1.0910 (S1) and hit resistance at 1.0990 (R1). The near-term bias stays positive, in my view. I believe that a move above 1.0990 (R1) is likely to open the way for another test at the critical resistance line of 1.1045 (R2). Nevertheless, our short-term oscillators still give evidence that a minor pullback could be in the works before the bulls take another shot. The RSI hit resistance near its 70 line and turned down, while the MACD shows signs of topping and that it could fall below its trigger soon. In the bigger picture, EUR/USD is still trading below both the 50- and the 200-day moving averages. However, a clear close below 1.0460 is needed to confirm a forthcoming lower low and trigger the resumption of the larger downtrend. On the other hand, a close above 1.1045 (R2) could signal the completion of a double bottom and perhaps set the stage for larger bullish extensions.

• Support: 1.0910 (S1), 1.0830 (S2), 1.0785 (S3).

• Resistance: 1.0990 (R1), 1.1045 (R2), 1.1115 (R3).

GBP/JPY continued to trade higher to breach the resistance (now turned into support) line of 181.75 (S1) and to trade near the 182.30 (R1) barrier. The pair is still trading within a short-term upside channel and this keeps the short-term picture positive in my view. A move above 182.30 (R1) is likely to set the stage for a test at 183.00 (R2). Nevertheless, looking at our oscillators, I would stay cautious that a pullback could be looming before buyers try again. Both the RSI and the MACD show signs that they could start topping. On the daily chart, the rate is trading above both the 50-and the 200-day moving averages and this supports the continuation of the short-term uptrend. Our daily oscillators corroborate that view as well. The RSI continued higher after crossing its 50 line, while the MACD, already above its trigger line, just poked its nose above its zero line.

• Support: 181.75 (S1), 181.00 (S2), 180.00 (S3).

• Resistance: 182.30 (R1), 183.00 (R2), 183.80 (R3).

AUD/USD flew yesterday, crushing the key resistance (now turned into support) line of 0.7900 (S2), which is the upper bound of the sideways range the pair had been trading since the 29th of January. This confirmed my view that following the completion of the double bottom, the short-term bias of this pair is to the upside. However, the advance was halted by our resistance line of 0.8025 (R1), marked by the peak of the 28th of January. A break above that obstacle is likely to target initially the next resistance at 0.8065 (R2). Looking at our oscillators though, I would be mindful that a possible corrective move could be on the cards. The RSI has topped and looks ready to exit its overbought zone soon. The MACD shows signs of topping as well. On the daily chart, the upside escape from the 3-month trading range between 0.7550 and 0.7900 (S2) confirmed the positive divergence between the daily oscillators and the price action and turned the medium-term bias to the upside, in my view.

• Support: 0.7940 (S1), 0.7900 (S2), 0.7840 (S3).

• Resistance: 0.8025 (R1), 0.8065 (R2), 0.8135 (R3).

Gold continued its surge yesterday, breaking above 1205 (S1) and hitting 1215 (R1). As long as the metal is trading above the upper bound of the near-term downside channel, the short-term picture remains positive. A clear break above 1215 (R1) could probably set the stage for extensions towards the next resistance at 1224 (R2), defined by the peak of the 6th of April. However, given that the RSI found resistance at 70 and retreated, I would be careful that a pullback could be looming before the next positive leg. A pullback could perhaps test the 1205 (S1) line as a support this time. As for the bigger picture, this week’s rally brings into question my view that we could see the metal trading lower in the not-too-distant future. As a result, I would take to the sidelines as far as the overall picture is concerned. A clear close above 1224 (R2) could signal the completion of an inverted head and shoulders formation and perhaps carry larger bullish implications.

• Support: 1205 (S1), 1197 (S2), 1186 (S3).

• Resistance: 1215 (R1), 1224 (R2), 1235 (R3).

WTI rebounded from 56.10 (S2) on Tuesday, but hit resistance near 57.85 (R2) and retreated to sit around 56.75 (S1). With no clear trending structure on the 1-hour chart, I would switch my stance to neutral for now as far as the near term is concerned. The trendless short-term picture is also confirmed by our hourly oscillators. Both the 14-hour RSI and the hourly MACD stand near their equilibrium lines pointing sideways. However, on the daily chart, I still see a positive medium term outlook. The break above 55.00 on the 14th of April signalled the completion of a double bottom formation, something that could carry larger bullish implications in the not-too-distant future. Therefore, I would treat any possible further downside extensions as a corrective phase.

• Support: 56.75 (S1), 56.10 (S2), 55.70 (S3).

• Resistance: 57.35 (R1) 57.85 (R2), 58.40 (R3).

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IronFX Daily Commentary | 30/04/15

Language English

Poor US GDP figures followed by mixed FOMC = weaker USD for now The market will now pay more attention to the Atlanta Fed! The market consensus forecast for Q1 GDP was +1.0% qoq SAAR, with estimates ranging from flat to +1.5%. Meanwhile the Atlanta Fed was forecasting +0.1%. In the event it came in at +0.2%, lower than all but four out of 76 economists had estimated. Even that meagre growth was because of a larger-than-expected rise from inventories, which makes a correction in Q2 a risk. Weather and the port strikes were temporary drags on growth but that appeared to be only a small part of the story.

The FOMC statement did not try to put a good face on the news. It said that “economic growth slowed during the winter months, in part reflecting transitory factors.” This was nowhere near as optimistic as the statement it made last April, when it said that ”growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions.” It noted several ways in which indicators have not picked up: “the pace of job gains moderated” “underutilization of labor resources was little changed;” household spending growth “declined” even though real incomes rose strongly; business investment “softened;” etc. The description of inflation was also a bit more dovish; the Committee said inflation was running below target only “partly” instead of “largely” because of “earlier declines in energy prices.” It added “decreasing prices of non-energy imports” to the causes, which probably refers to the impact of the strong dollar on the price of imported goods.

Nonetheless, most of the changes were in the first paragraph, which described the existing state of affairs. The remainder of the statement, which describes the FOMC’s expectations and intentions, was virtually unchanged. Moreover, the March statement noted that a rise in rates was “unlikely” in April, but this statement gave no time-dependent guidance on rates whatsoever. This is the first time in years that there has been no such calendar-based guidance. From now on, the market will have to figure out meeting-by-meeting whether the FOMC “has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.” In theory this leaves them the option of raising rates as early as June if the data warrant such a move, although that seems unlikely. As a result, Fed funds rate expectations actually rose after the statement, with the implied interest rate on the March 2018 contract gaining 4 bps. I expect that after the initial action has faded, the reaction will set in as people realize that the FOMC is still determined to hike rates – it is just thinking of when, not whether. Accordingly the monetary divergence that has been driving the FX market is still in place and USD should resume its rally.

BoJ stands pat even while downgrading outlook The Bank of Japan made no changes in its QE program despite downgrading its inflation forecast. It now sees inflation reaching the 2% target “around the first half of fiscal 2016, assuming that crude oil prices will rise moderately from the recent level.” Previously, it had forecast reaching its target “in or around fiscal 2015.” (The Japanese fiscal year begins in April, so FY2015 is April 2015-March 2016 and FY2016 is April 2016-March 2017.) By blaming low inflation on oil, the BoJ can try to escape responsibility despite the fact that core inflation, which excludes food and energy, is also running at around zero after taking the hike in the consumption tax into account. In any event, as I said yesterday, I would expect them to wait to take any more action at least until July, when the results of this year’s wage negotiation should be known and the MPC members update their forecasts again. October, when the next official outlook report comes out, is the favored month for the market.

RBNZ turns dovish Meanwhile, the Reserve Bank of New Zealand (RBNZ), the first developed-nation central bank to hike rates in this cycle, turned dovish. It dropped the previous month’s line about “a period of stability in the OCR” and “future interest rate adjustments, either up or down…” Instead, it said only that “(i)t would be appropriate to lower the OCR if demand weakens, and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target.” In other words, no more mention of the conditions for raising rates, only dropping them. As usual, the RBNZ also repeated its displeasure with the value of the NZD. To add to the negative background for the currency, Fonterra cut its forecast milk payout for the current season because of oversupply.

NZD weakened considerably -- it was the only G10 currency to fall against the dollar over the last 24 hours. The decline seems to have momentum and I would expect to see NZD continue to weaken. However, over the medium term there is no indication that the NZ economy will fulfil the conditions that RBNZ set out for easing policy further. On the contrary, most indicators remain robust. So I do not think the weaker trend will continue indefinitely. I would watch the technicals for the appropriate time to put on short AUD/NZD positions again.

Greece update: According to the Greek press, a reinforced Greek team is to resume negotiations with the country’s creditors in Brussels today. There are said to be some new proposals from the Greek side that may include changes to Greece’s public sector and tax administration but not to pensions and the labor market, which are key areas of disagreement. A Greek government official reportedly indicated that the government’s “red lines” would remain in place. That implies no agreement. The drive to disaster continues.

Today’s highlights: During the European day, Eurozone’s flash CPI for April and unemployment rate for March are coming out. The rise of the German inflation rate on Wednesday increased the likelihood that the bloc could jump from its deflationary territory. This could prove EUR-supportive. However, following the introduction of the QE program by the ECB, the impact of the CPI on EUR is not as great as it used to. Thus the reaction in the markets could be limited. German retail sales for March (a disappointing -2.3% mom) and unemployment rate for April are also due out.

In Norway, AKU unemployment rate for February is expected to increase a bit. The official unemployment rate for the same month had declined somewhat, so we could see a positive surprise in the AKU unemployment figure. This could strengthen NOK.

From Canada, the monthly GDP rate for February is expected to decline, at the same pace as in the previous month. This is expected to cause the annual growth rate to decelerate and could prove CAD-negative.

In the US, we get the personal income and personal spending for March. Personal income is expected decelerate a bit, while personal spending is anticipated to accelerate from the previous month. The nation’s yoy rate of the PCE deflator and core PCE are also coming out. The nation’s yoy rate of the PCE deflator is expected to rise a bit, while the core PCE rate is forecast to remain unchanged.

The employment cost index (ECI) for Q1, a closely followed gauge that reflects how much firms and government pay their employees in wages and benefits, is expected to accelerate a bit from Q4. This could add to Fed officials’ view that the labor market continues to improve and they are on their way to fulfilling their mandate. The risk for this indicator seems to be on the upside, because of year-over-year base effects. The BLS earlier this week put out its annual revision of data going back five years, incorporating updated seasonal factors ( https://www.bls.gov/ncs/ect/sp/ecisf5yr.pdf ). The revisions still show low figures for Q1 2014. Given the uncertainty about the underlying trend in what is a rather erratic series, there could be a significant surprise in the figure. A solid increase in the ECI would tend to make Fed officials feel more confident about their inflation forecast. In any event, Chair Yellen has said that rising wage and price inflation is not a precondition for liftoff.

Initial jobless claims and the Chicago Purchasing managers’ index for April are also coming.

As for the speakers, Fed Governor Daniel Tarullo speaks.

Currency Titles:

EUR/USD surges above 1.1045

GBP/USD touches 1.5500

USD/CAD triggers some buy orders slightly below 1.2000

Gold pulls back

WTI climbs and hits 59.30

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Currencies Text:

EUR/USD surged on Wednesday following the surprising weak US Q1 GDP report. The rate broke above the key resistance (now turned into support) line of 1.1045 (S1) and hit resistance near 1.1180 (R1). Subsequently the rate retreated somewhat. The near-term bias stays positive, in my view. I believe that a clear move above 1.1180 (R1) is likely to set the stage for extensions towards the next critical resistance line of 1.1260 (R2). Nevertheless, bearing in mind that the RSI has topped within its overbought territory, I would stay cautious that further pullback may be looming before the bulls pull the trigger again. On the daily chart, the break above 1.1045 (S1) signaled the completion of a possible double bottom formation, something that could carry larger bullish extensions.

• Support: 1.1045 (S1), 1.0990 (S2), 1.0910 (S3).

• Resistance: 1.1180 (R1), 1.1260 (R2), 1.1375 (R3).

GBP/USD continued to race higher yesterday, breaking above the resistance (now turned into support) of 1.5400 (S1) and reaching the psychological line of 1.5500 (R1). The price structure on the 4-hour chart remains higher highs and higher lows above the black short-term uptrend line. As a result I believe that the short-term bias is to the upside. A clear break above the key line of 1.5500 (R1) is likely to challenge the next resistance at 1.5550 (R3). A move above that line is likely to open the way for the 1.5620 (R3) obstacle. However, taking a look at our short-term oscillators, I would be careful of a possible pullback before the bulls prevail again. The RSI shows signs that it could exit its overbought territory in the near future, while the MACD has topped and could move below its trigger soon. On the daily chart, Cable is trading well above the 80-day exponential moving average, and this prints a positive medium term picture, in my view.

• Support: 1.5400 (S1), 1.5330 (S2), 1.5260 (S3).

• Resistance: 1.5500 (R1), 1.5550 (R2), 1.5620 (R3).

USD/CAD continued to trade lower, breached the psychological line of 1.2000 (S1), but triggered some buy orders below that key line. Although the short-term outlook still seems somewhat negative, I would expect the forthcoming wave to be positive. This is because I see positive divergence between both our short-term oscillators and the price action. Also, the RSI exited its oversold territory and is pointing somewhat up, while the MACD has bottomed and appears ready to move above its trigger line soon. What is more, on the daily chart, the rate is trading near the longer-term uptrend line taken from back the 11th of July. In my opinion, a daily close below that uptrend line is needed to make me confident that further declines are on the cards. Furthermore, the 1.2000 (S1) psychological zone happens to be the 38.2% retracement level of the 38.2% retracement level of the July – March longer-term uptrend, and also the 200% extension level of the height of the trading range USD/CAD had been trading from the 22nd of January until the 15th of April.

• Support: 1.2000 (S1), 1.1940 (S2), 1.1800 (S3).

• Resistance: 1.2085 (R1), 1.2215 (R2), 1.2300 (R3).

Gold pulled back after hitting resistance at 1215 (R1). Nevertheless, the metal is still trading above the upper bound of the near-term downside channel, thus the picture stays somewhat positive. A clear break above 1215 (R1) could probably set the stage for extensions towards the next resistance at 1224 (R2), defined by the peak of the 6th of April. The RSI continue to decline after hitting resistance at its 70 line, while the MACD has topped and fallen below its signal line. These momentum signs make me believe that the pullback may continue a bit more, perhaps to test the 1197 (S1) line as a support this time. As for the bigger picture, this Monday’s and Tuesday’s rallies bring into question my view that the metal is likely to trade lower in the not-too-distant future. As a result, I would take to the sidelines as far as the overall picture is concerned. A clear close above 1224 (R2) could signal the completion of an inverted head and shoulders formation and perhaps carry larger bullish implications.

• Support: 1197 (S1), 1186 (S2), 1175 (S3).

• Resistance: 1215 (R1), 1224 (R2), 1235 (R3).

WTI rallied on Wednesday breaking three resistance lines in a row, to eventually stop around 59.30 (R1) before sliding to sit at the support of 58.40 (S1). Yesterday’s move shifted the bias back to the upside, thus I would expect the bulls to take advantage of the pullback and shoot for the psychological zone of 60.00 (R2). Nevertheless, our hourly momentum studies show signs of weakness, and therefore the pullback may continue for a while before the next leg up. The 14-hour RSI exited its overbought territory and stood slightly below its 70 line, while the hourly MACD has topped and could fall below its trigger any time soon. On the daily chart, I still see a positive medium term outlook. The break above 55.00 on the 14th of April signalled the completion of a double bottom formation, something that could carry larger bullish implications in the not-too-distant future.

• Support: 58.40 (S1), 57.85 (S2), 57.35 (S3).

• Resistance: 59.30 (R1) 60.00 (R2), 60.50 (R3).

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IronFX Daily Commentary | 01/05/15

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Dollar reverses course Just when the market was getting convinced that the US economy is weak, a string of better-than-expected indicators surprises on the upside. Personal income and spending were nothing special, but initial jobless claims hit almost a record low, the Chicago PMI beat expectations, and most importantly, the Employment Cost Index (ECI) also beat expectations. One of the things the Fed wants to see is indications that wages are rising, because that is a surefire sign that the labor market is firming. Fewer people out of work and wages rising is a strong indication that they are nearing their goal of “maximum employment,” which would justify raising rates.

The jobless claims are worth a bit of attention. You may read elsewhere that the figure of 262k was the lowest since 259k in April 2000. However, back then there were 142.4mn people in the labor force, so the jobless claims amounted to 0.19% of the labor force. Now there are 156.9mn people in the labor force, so the claims amount to 0.18% of the labor force – a record low. Plus with employment costs rising, rate expectations as shown in the Fed funds futures rose another 4 bps. It seems that despite the dovish FOMC statement, market participants are watching the data, just like the FOMC members, and making up their minds as they go along.

Part of the problem is that people had expected this year to follow last year’s path, and it’s not. If we look at the Citi economic surprise index last year and this, in both years it fell from January to March as the bad weather caused the data to be weak. Then last year it rose strongly from April to the end of May as the weather cleared and the data improved. This year was starting to follow that pattern, but things fell apart and the data started disappointing again, causing a reversal in markets. Now however are the data starting to improve? The Atlanta Fed’s forecast for Q2 GDP is a pretty miserable +0.9% qoq SAAR – this would compare with +4.6% in the like year-earlier period. So we may be in for a “soft patch” for a bit longer. The dollar could still appreciate however as long as the general trend in US indicators is improving, particularly with regards to prices and employment, as seems to be the case.

Japan’s CPI collapses as consumption tax effect falls out The usual end-of-month deluge of data from Japan brought the Tokyo CPI for April, which is one month ahead of the national CPI. That means the hike in the consumption tax in April 2014 has fallen out of the yoy comparison. The result: the overall rate of growth in the CPI fell to 0.7% yoy from 2.3%, while the rate of increase in core CPI (excluding energy and fresh food) collapsed from 1.7% to zero. It’s hard to make the argument – as the BoJ does – that the fall in energy prices is the reason inflation is below target when in fact inflation excluding energy prices is so much lower than inflation including energy prices. Next month we’ll start to see the national CPI excluding the effects of the consumption tax hike, which should be much lower. Then the pressure will be on the BoJ and we may see USD/JPY moving higher. However, so far the BoJ sees no need to move. They released a paper today, “Quantitative and Qualitative Monetary Easing: Assessment of Its Effects in the Two Years since Its Introduction.” They conclude that “QQE lowered real interest rates by slightly less than 1 percentage point” and “the actual improvement in economic activity and prices was mostly in line with the mechanism anticipated by QQE.” In other words, success. That implies to me that if it looks like inflation won’t come back to 2% within their target period, which Gov. Kuroda yesterday said was sometime between April and September next year, that they will try increasing QQE. The market assumption of an increase in stimulus sometime around October seems quite possible.

China PMI unchanged China’s official PMI was unchanged in April at 50.1. Seems too good to be true. The HSBC/Markit PMI is 49.2. Of course, the official version polls more large state-owned companies while HSBC/Markit emphasizes the private sector, so that may be the cause. Interesting to note that the figure had no impact at all on AUD, which was the worst-performing G10 currency over the last 24 hours. Either people are not watching this gauge or it didn’t matter as it was near expectations. Or perhaps AUD is being driven by domestic policy expectations ahead of next week’s Reserve Bank of Australia meeting.

Today’s highlights: During the European day, the UK’s manufacturing PMI for April is expected to increase a touch from the previous month. Mortgage approvals for March are also coming out.

In the US, we get the final Markit manufacturing PMI and the ISM manufacturing index both for April. The final University of Michigan consumer sentiment for March are coming out along with the surveys of 1-year and 5-to-10 year inflation expectations.

From Canada, the RBC Manufacturing PMI for March is expected. The market doesn’t pay that much attention to it and prefers the Ivey manufacturing PMI instead.

We have two Fed speakers on Friday’s agenda: Cleveland Fed President Loretta Mester and San Francisco Fed President John Williams. Williams is considered to be a centrist and he is a voting member this year. Therefore, his view is important and we would be looking for any comments to see if the Fed is still on track to raise rates this year and if the June rate hike scenario is still on the cards.

Currency Titles:

EUR/USD reaches the 1.1260 line

GBP/JPY continues north

NZD/USD collapses after finding resistance at 0.7740

Gold collapses back below 1200

WTI hits resistance slightly below 60.00

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EUR/USD continued its rally on Thursday, and managed to reach the critical resistance line of 1.1260 (R1). The near-term bias stays positive, in my view, but I need to see a clear close above the 1.1260 (R1) zone before I get more confident on the upside. Such a break is likely to see scope for extensions towards our next resistance line of 1.1375 (R2), marked by the peak of the 26th of February. Nevertheless, taking into account our momentum studies, I would be careful that a pullback may be looming before the bulls pull the trigger again. The RSI has topped within its overbought zone and looks ready to cross below 70 soon, while the MACD has topped and could fall below its trigger line soon. On the daily chart, the break above 1.1045 (S2) signaled the completion of a possible double bottom formation, something that could carry larger bullish implications.

• Support: 1.1115 (S1), 1.1045 (S2), 1.0990 (S3).

• Resistance: 1.1260 (R1), 1.1375 (R2), 1.1445 (R3).

GBP/JPY continued to trade higher, and managed to hit resistance at 184.10 (R1). I believe that the short-term bias remains positive and that a clear move above 184.10 (R1) is likely to pave the way for the psychological round number of 185.00 (R2), That key level acted as a strong resistance back on the 26th and 27th of February. Nevertheless, looking at our oscillators, I would stay cautious that a retreat could be possible before buyers try again. The RSI exited its overbought territory, while the MACD, at extreme positive levels, topped and fell below its trigger line. On the daily chart, the rate is trading above both the 50-and the 200-day moving averages and this supports the continuation of the short-term uptrend. Our daily oscillators corroborate that view as well. The RSI continued higher after crossing its 50 line. It now seems ready to enter its overbought field. The MACD stands above both its zero and signal lines and points north.

• Support: 183.00 (S1), 182.30 (S2), 181.75 (S3).

• Resistance: 184.10 (R1), 185.00 (R2), 185.60 (R3).

NZD/USD collapsed after hitting again resistance at the critical barrier of 0.7740 (R3), and is now trading slightly above the 0.7575 (S1) line and the 200-period moving average. A move below 0.7575 (S1) is likely to target the next support line at 0.7535 (S2), defined by the low of the 23rd of April. However, without a clear trending structure on the 4-hour chart, I would prefer to sit on the sidelines for now. A clear break below 0.7535 (S2) could confirm the negative divergence between our oscillators and the price action and signal the completion of a possible double top formation. On the upside, a daily close above the important line of 0.7740 (R3) is needed to confirm a forthcoming higher high on the daily chart and keep the medium-term picture positive.

• Support: 0.7575 (S1), 0.7535 (S2), 0.7500 (S3).

• Resistance: 0.7640 (R1), 0.7670 (R2), 0.7740 (R3).

Gold plunged on Thursday to trade back below 1200 (R2). The precious metal hit support marginally above our 1175 (S1) line and subsequently rebounded to find resistance slightly below 1186 (R1). Yesterday’s plunge dismissed the somewhat positive outlook and turned the picture neutral in my view. I want to see a clear move below 1175 (S1) to turn the bias negative. Such a move is likely to challenge our next support line at 1165 (S2). On the daily chart, both our short-term oscillators gyrate around their equilibrium lines, confirming the short-term trendless picture. As far as the overall picture is concerned, a dip below 1175 (S1) is likely to confirm that the 17th of March – 6th of April recovery was just a 50% retracement of the 22nd of January – 17th of March decline, and that the prevailing downtrend is back in force. On the other hand, a clear close above 1224 could signal the completion of an inverted head and shoulders formation and perhaps carry larger bullish implications.

• Support: 1175 (S1), 1165 (S2), 1158 (S3).

• Resistance: 1186 (R1), 1200 (R2), 1215 (R3).

WTI continued to trade higher, breaking above the resistance (now turned into support) line of 59.30 (S1). Nevertheless, the advance was halted 15 cents below the psychological round figure of 60.00 (R2), at 59.85 (R1). A clear break above the round number of 60.00 (R2) is needed to set the stage for larger bullish implications. Taking a look though at our hourly oscillators, I see signs that a downside corrective move could be on the cards before the next positive leg, perhaps back below the 59.30 (S1) barrier. The 14-hour RSI stands below its 30 line and points sideways, while the hourly MACD has topped and fallen below its signal line. There is also negative divergence between both these indicators and the price action. On the daily chart, I still see a positive medium term outlook. The break above 55.00 on the 14th of April signalled the completion of a double bottom formation, something that could carry larger bullish implications in the not-too-distant future.

• Support: 59.30 (S1), 58.40 (S2), 57.85 (S3).

• Resistance: 59.85 (R1) 60.00 (R2), 60.50 (R3).

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IronFX Daily Commentary | 04/05/15

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May is the month for USD to gain vs EUR The dollar took a beating last week, but rallied strongly on Friday, rising against almost all the currencies we track. It probably was just position-squaring at the end of the week, but it could be the start of a change in the dollar’s direction. In May the seasonal factors are likely to work in favour of USD vs EUR. I have no idea why it is, but over the last 10 years, the strongest seasonal pattern of any month has been that the dollar firmed against the euro in May. Not only has this been the biggest seasonal movement, as you can see, but the dollar strengthened 8 out of the 10 years, which is the best hit ratio of any month. So something seems to be going on, although I don’t know what it is. As always, past performance is no guarantee of future performance, but then again, past performance may also indicate some underlying factor that causes something to happen frequently.

COT report shows more room for short GBP positions The general trend last week was for investors to close out their existing long positions, be those in European stocks, European bonds, or the dollar. This trend was confirmed in the weekly Commitment of Traders (COT) report, which showed in most cases investors paring their positions. The biggest exceptions were GBP and MXN, where investors added to short positions. Still, it looks to me like investors are not all that short GBP. Their positions are around the 25% percentile over both the last two and five years (meaning, they were more long or less short 75% of the time). This is certainly on the short end of things but hardly what one would expect ahead of such a momentous event. In the options market too, implied volatility has risen but is nowhere near where it was a few years ago. Nonetheless, this may reflect general less risk-taking; the 1m implied vol of GBP/USD options is much higher than it used to be relative to the implied vol of other currencies even if the actual value is still relatively low. In either case, there’s still plenty of room for investors to add to their short GBP positions this week ahead of the elections and afterwards. This is by no means yet a “crowded trade.”

China PMI revised down In China, the HSBC final manufacturing PMI for April was revised down to 48.9 from the initial figure of 49.2. The market had been expecting it to be revised up a bit. The figure adds to the evidence of a slowdown in China, which worsens the background for the Reserve Bank of Australia (RBA) as they meet tomorrow and increases the likelihood of a cut (see below). AUD-negative.

Today’s highlights: During the European day, we get the final manufacturing PMI figures for April from several European countries, and the final figure for the Eurozone as a whole. As usual, the final forecasts for the French, the German and Eurozone’s figures are the same as the initial estimates. Therefore, the market reaction on these news is usually limited, unless we have a huge revision in the final figures.

In Norway, we get the official unemployment rate for April.

In the US, factory orders for March are forecast to accelerate.

As for the speakers, Chicago Fed President Charles Evans and San Francisco Fed President John Williams speak. Williams spoke on Friday so his comments today are not likely to move the markets. He attributed the slowdown in Q1 to the bad weather and West coast port closures and said that the Fed could raise rates at any meeting, depending on the data.

As for the rest of the week Friday’s US employment report, two central bank meetings and the UK general election are likely to make for a volatile week for the FX market. On top of which, this is “Golden week” in Japan, when the entire nation goes on holiday, so we may have thin market activity and low liquidity in JPY.

Tuesday: RBA On Tuesday the spotlight will be on the RBA policy meeting. At their last meeting, the RBA left the cash rate unchanged at 2.25%, in line with what economists thought but contrary to what the market was pricing in. At this week’s meeting, the 25 out of 28 economists polled by Bloomberg expect a 25 bps cut, while the market gives a 60% probability to a cut. Given that the Bank kept its easing bias last time and said that further easing of policy may be appropriate over the period ahead, a rate cut cannot be ruled out at this meeting. On top of that, Australia’s deteriorating economic outlook, with the CPI rate having declined further in Q1, puts additional pressure on the Bank to take further action. The country is also at risk of losing its triple-A credit rating, which again amplifies the case for action to boost the economy and keep the privilege of borrowing at low cost. We expect a rate cut and think that AUD is likely to weaken modestly as a result.

Wednesday: ADP report, ECB weekly meeting to discuss Greece we get US ADP employment report for April, two days ahead of the nonfarm payroll release. The ADP report is expected to show that the private sector gained more jobs in April than it did in the previous month. Even though the ADP has relatively little predictive power for the initial payrolls figure, the market tends to treat it as if it’s a reliable indicator and so a figure like that would be taken as USD-bullish. Also, the ECB holds its regular weekly meeting, at which it will decide on the provision of liquidity to Greek banks. There is the possibility that they might increase the “haircut” on collateral that Greek banks put up for loans, which would severely constrain the Greek banking system.

Thursday: UK elections, Norges Bank The polls still suggest a tight finish to the UK election with no clear winner, while implied volatility has spiked above the levels seen before the Scottish referendum in September. The increased uncertainty is likely to put GBP under pressure both ahead of the election and, most likely, afterwards as well, as the markets watch the horse trading that goes on in order to form a coalition. Separately, the Norges Bank holds its policy meeting. In their last meeting, the Bank surprised the market and kept its interest rates unchanged at 1.25%. Since not much has changed fundamentally in the country since then and oil prices have been rising recently, we expect the Bank to keep its policy rate unchanged again. Adding as well the improving oil prices, we could see NOK gaining momentum again.

Friday: nonfarm payrolls day! Or NFP for short. The market consensus for April is for an increase in payrolls of 230k, up from the unexpectedly low 126k in March. A reading above 200k and a possible upward revision of the March’s figure would be likely to boost USD across the board. At the same time, the unemployment rate is forecast to tick down to 5.4% from 5.5%, while average hourly earnings are expected to accelerate a bit on a yoy basis. Therefore, a strong NFP figure, and overall, a robust employment report would suggest that the Fed to remains on track to raise rates at some point this year. This could help the USD to recover some of its lost glamour.

Currency Titles:

EUR/USD pulls back

EUR/GBP hits 0.7420

USD/JPY breaks above 120.00 again

Gold triggers some buy orders near 1170

WTI tumbles after hitting resistance slightly below 60.00

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EUR/USD pulled back after finding resistance slightly above the key resistance line of 1.1260 (R1). The near-term outlook stays positive in my view, but I need to see a clear close above the 1.1260 (R1) zone before I get more confident on the upside. Such a break would be likely to see scope for extensions towards our next resistance line of 1.1375 (R2), marked by the peak of the 26th of February. Nevertheless, taking into account our momentum studies, I would be careful that the pullback may continue, perhaps for a test at the support of 1.1115 (S1). The RSI exited its overbought territory, while the MACD has topped and fallen below its signal line. There is also negative divergence between the RSI and the price action. On the daily chart, the break above 1.1045 (S2) signaled the completion of a possible double bottom formation, something that could carry larger bullish extensions.

• Support: 1.1115 (S1), 1.1045 (S2), 1.0990 (S3).

• Resistance: 1.1260 (R1), 1.1375 (R2), 1.1445 (R3).

EUR/GBP continued to trade higher, broke above 0.7380 (S1) and hit resistance at 0.7420 (R1). After the break above the downside resistance line on the 29th of April, the price has been climbing higher, and therefore I see a positive near-term picture. A move above the 0.7420 (R1) resistance is likely to challenge the next one, at 0.7450 (R2). However, our oscillators give evidence that a downside corrective move could be on the cards before the next leg higher. The RSI has topped and could exit its overbought zone soon, while the MACD shows signs of topping and could move below its trigger line in the near future. A break below 0.7380 (S1) is likely to confirm the pullback and perhaps aim the next support at 0.7335 (S2). On the daily chart, we have the completion of a possible failure swing bottom formation, something that could bring a medium-term trend reversal.

• Support: 0.7380 (S1), 0.7335 (S2), 0.7300 (S3).

• Resistance: 0.7420 (R1), 0.7450 (R2), 0.7500 (R3).

USD/JPY continued to race higher on Friday and managed to break once again above the round number of 120.00 (S1). Nevertheless, the rate hit resistance at 120.30 (R1) and retreated somewhat. A break above 120.30 (R1) is likely to extend the recent advances and perhaps target our next obstacle at 120.80 (R2). Although I believe that the forthcoming wave is likely to be positive, the price structure on the 4-hour chart suggests a sideways near-term path. Therefore, I believe that the short-term picture of USD/JPY is neutral. On the daily chart, the rate is trading back above the 50-day moving average, and well above the 200-day one. It also stays above the upper line of the triangle formation that had been containing the price action since November. This keeps the major uptrend intact, but given that there is still negative divergence between the daily oscillators and the price action, I would prefer to stand aside for now as far as the overall picture is concerned as well.

• Support: 120.00 (S1), 119.45 (S2), 118.75 (S3).

• Resistance: 120.30(R1), 120.80 (R2), 121.20 (R3).

Gold traded lower on Friday, but triggered some buy orders around 1170 (S1), and subsequently rebounded to trade slightly below the 1186 (R1) line. Bearing in mind that the RSI hit support at its 30 line and edged higher, and that the MACD has bottomed and could move above its trigger soon, I would expect the metal to continue to trade higher. A break above 1186 (R1) is likely to confirm that and perhaps trigger extensions towards the psychological figure of 1200 (R2). Although the rebound may continue, with no clear trending structure, I maintain my view that the outlook is neutral. On the daily chart, both our short-term oscillators gyrate around their equilibrium lines, confirming the trendless short-term picture.

• Support: 1170 (S1), 1160 (S2), 1152 (S3).

• Resistance: 1186 (R1), 1200 (R2), 1215 (R3).

WTI slid on Friday after hitting resistance at 59.85 (R2). Subsequently, it hit support at 58.40 (S2) and rebounded somewhat. Friday’s tumble confirmed the negative divergence between our short-term oscillators and the price action, and turned the short-term outlook neutral. A break below 58.40 (S2) is the move that could print a negative near-term picture, while a move above the psychological round number of 60.00 (R3) is the move that could see scope for larger positive extensions. On the daily chart, I still see a positive medium term outlook. The break above 55.00 on the 14th of April signalled the completion of a double bottom formation, something that could carry larger bullish implications in the not-too-distant future. As a result, I would treat any possible negative waves on the 1-hour chart as a corrective phase before buyers pull the trigger again.

• Support: 58.75 (S1), 58.40 (S2), 57.85 (S3).

• Resistance: 59.35 (R1) 59.85 (R2), 60.00 (R3).

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IronFX Daily Commentary | 05/05/15

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PMIs show Europe on top Yesterday’s purchasing managers indices (PMIs) for April showed Europe on top of the world, apparently. The Markit manufacturing PMI for the Eurozone moved above the ISM manufacturing index, something that does not happen often and is usually accompanied by a stronger euro. Past performance is no guarantee of future performance however, especially as ECB monetary policy is not likely to change no matter how strong the PMIs get. Meanwhile of the top 28 countries reporting so far, the top 10 are all European. Italy has shown the biggest improvement over the last three months, which perhaps is testimony to the benefit of starting pretty low. Note though that Sweden is the top-rated country (furthest to the right on the graph below), indicating that the Riksbank is more worried about deflation than about the overall health of the economy, which seems to be relatively robust. Perhaps they can afford to worry less about deflation in the future, in which case SEK could gain. Unfortunately the Greek PMI (not shown) fell, indicating that the turmoil there is damaging confidence and the economy. Canada deteriorated notably. Asian PMIs (not shown) were fairly negative, for example with Singapore falling to 49.4, the lowest since February 2013. Manufacturing activity in other Asian countries, such as South Korea, Taiwan and Indonesia, also shrank. That suggests global growth is slowing, which would be negative for the growth-sensitive commodity currencies.

Fed’s Evans: the dove still sings Chicago Fed President Charles Evans yesterday lived up to his reputation as a dove. He said the economy did appear to be on a “sustainable growth path, which, on its own, would support a rate hike soon.” However he said he would like to see “confirmation” that the weakness in Q1 was only transitory and repeated his call to hold borrowing costs near zero until early 2016. He doesn’t see inflation reaching the Fed’s 2% goal until 2018. This probably shows what one of the extremes on the FOMC is, not what the FOMC consensus is.

RBA cuts 25 bps, as expected; AUD strengthens The RBA cut rates by 25 bps today, as expected. It said further declines in the currency seem likely and necessary because of the fall in commodity prices. Nonetheless, the AUD rebounded sharply after the news, apparently because the RBA removed the easing bias from its statement. I don’t think that’s appropriate, however. The RBA did the same thing back when it last cut rates back in February. Then too the last paragraph gave no indication about the future direction of rates. Admittedly, the overall economic assessment back in February was more pessimistic than it was this time although the conclusion – that “(t)he economy is likely to be operating with a degree of spare capacity for some time yet” and inflation would remain “consistent with the target” – was exactly the same. Admittedly, when it cut rates before then, in August 2013, it said that “The Board will continue to assess the outlook and adjust policy as needed…” but then it left rates unchanged until February 2015. So we see that it can move three months after making no comment on its intentions, while it can leave rates unchanged for 1 ½ years after suggesting further action is coming. In other words, I wouldn’t read too much into the fact that there was no comment on the bias in rates. I expect a further slowdown in China and a further slowdown in business investment in Australia, which should lead to further interest rate cuts and a weaker currency.

A big day for Greece tomorrow The Greek government is apparently redoubling its efforts to find some agreement that will allow the ECB to continue to finance Greek banks. The ECB’s regular weekly meeting tomorrow will reportedly consider the discount (known as the “haircut”) applied to the collateral that Greek banks post in return for Emergency Liquidity Assistance (ELA). Currently the discount is said to be 23%. The Greek newspaper Kathimerini says the ECB will consider raising it to 44%, 65% or 80%. If it raises the haircut, then banks will either have to come up with more collateral or they will receive less funds, in which case they would have to call in some loans. That would increase pressure considerably on the Greek government.

Deputy Prime Minister Yiannis Dragasakis is to meet with ECB President Draghi in Frankfurt today along with Euclid Tsakalotos, the alternate foreign minister who has been tasked with “coordinating” Greece’s negotiating team. They will try to get the ECB to increase the amount of ELA funds it extends to Greece and raise the ceiling on the amount of T-bills Greece is allowed to issue. The problem is, the ECB can only supply ELA funds to solvent banks. But if the Greek government defaults, that would probably push a lot of the Greek banks into bankruptcy (because so much of their assets are Greek government bonds). If the talks between the “institutions” and the Greek government are going well, then the ECB can assume that Greece won’t default. But if the talks do not make any progress, then eventually the ECB will have to pull the plug on Greece.

Meanwhile, the IMF has warned that Greece is so far off course on its bailout program that the IMF may no longer be able to support it unless European lenders write off significant amounts of its sovereign debt. If the IMF withholds its half of a €7.2bn tranche of bailout aid, Greece would probably run out of cash this month. This puts Greece’s Eurozone creditors in a bind. They are adamantly opposed to debt relief, but IMF support is crucial.

Once again the ECB or IMF, whose members do not have to run for election, may be forced to do what the politicians don’t have the courage to do. Nobody wants their fingerprints on the gun that kills the Eurozone.

Today’s highlights: The European day starts with Sweden’s industrial production for March. The forecast is for a turnaround to +0.2% mom from -0.1% mom in February. This could add to the Krona’s strength following the Riksbank’s unexpected decision to leave its official cash rate unchanged.

In the UK, we get the construction PMI for April, which is forecast to have declined to 57.4 from 57.8. On Friday, the country’s manufacturing PMI for the month showed a decline as well. A decline in the construction PMI would confirm the slowdown in growth signaled by the manufacturing index. Coming after the weaker GDP growth rate for Q1, the PMIs give additional evidence that the UK economy is losing momentum.

In the US, the final Markit service-sector PMI for April is expected to confirm the initial estimate. Investors’ attention however will as usual focus on the ISM non-manufacturing PMI, which is forecast to have declined somewhat. This could hurt the dollar a bit. The US trade balance for March is also coming out.

No important speakers are scheduled on Tuesday.

During the Asian day before we come back in tomorrow, Australia will announce retail sales for March. They are expected to slow to +0.4% mom from +0.7% mom, which could add to the sense of slowdown in the economy. New Zealand unemployment for Q1 is expected to decline to 5.5% from 5.7% but much of that may be due to an expected decline in the participation rate, so I’m not sure whether it will boost NZD.

Currency Titles:

EUR/USD continues its pullback

AUD/USD triggers buy orders slightly below 0.7800 following the RBA decision

EUR/JPY hits resistance around 135.40 and pulls back

Gold trades somewhat higher

WTI tumbles and hits support near 58.40 again

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Currencies Text:

EUR/USD continued its slide on Monday and is currently trading slightly above the 1.1115 (S1) support line. The short-term picture stays positive in my view, but I prefer to wait for a clear close above the 1.1260 (R1) zone before I get more confident on the upside. Such a break could set the stage for extensions towards our next obstacle of 1.1375 (R2), marked by the peak of the 26th of February. Nevertheless, bearing in mind our momentum studies, I would stay mindful that further retreat could be in the works. The RSI headed towards its 50 line after exiting its overbought territory, while the MACD stands below its trigger and points south. A move below 1.1115 (S1) would probably confirm the continuation of the pullback and perhaps challenge the key zone of 1.1045 (S2) as a support this time. On the daily chart, the break above 1.1045 (S2) signaled the completion of a possible double bottom formation, something that could carry larger bullish implications.

• Support: 1.1115 (S1), 1.1045 (S2), 1.0990 (S3).

• Resistance: 1.1260 (R1), 1.1375 (R2), 1.1445 (R3).

AUD/USD tumbled during the European morning Tuesday after the Reserve Bank of Australia cut its benchmark interest rate by 25bps as expected. However, the pair triggered some buy orders slightly below our support line of 0.7800 (S2) and surged to break above the resistance (now turned into support) barrier of 0.7860 (S1). I would now expect the rate to challenge our next resistance obstacle of 0.7920 (R1), where a break is likely to extend the rally towards the 0.7975 hurdle (R2). Our short-term oscillators support the notion. The RSI rebounded and emerged above its 50 line, while the MACD has bottomed and could move above its trigger line soon. The rebound from around 0.7800 (S2) could confirm a higher low on the daily chart, and keep the medium term picture somewhat positive.

• Support: 0.7860 (S1), 0.7800 (S2), 0.7720 (S3).

• Resistance: 0.7920 (R1), 0.7975 (R2), 0.8025 (R3).

EUR/JPY started sliding after hitting resistance fractionally below 135.40 (R2). Currently the rate is trading above 133.55 (S1), where a clear break could signal the continuation of the tumble and perhaps target our next support line, at 132.50 (S2). Our momentum indicators corroborate my view that the slide is likely to continue. The RSI moved lower after exiting its overbought zone, while the MACD has topped and fallen below its signal line. Nevertheless, the rate is still trading well above the short-term uptrend line taken from back the low of the 15th of April and this keeps the short-term trend positive. I would treat any possible setbacks as a corrective move before the next positive leg. On the daily chart, the break above 131.40 (S3) confirmed the positive divergence between our daily oscillators and the price action and signaled a forthcoming higher high. Therefore, I believe that the medium term picture has also turned positive.

• Support: 133.55 (S1), 132.50 (S2), 131.40 (S3).

• Resistance: 134.60 (R1), 135.40 (R2), 136.20 (R3).

Gold traded somewhat higher on Monday, but hit resistance at 1193 (R1) and then retreated somewhat. Bearing in mind that the MACD has bottomed and crossed above its trigger, while the RSI edged higher, towards its 50 line, I still expect the metal to trade higher and perhaps challenge the psychological figure of 1200 (R2). Although the rebound may continue, with no clear trending structure on the 4-hour chart, I maintain my view that the outlook is neutral. On the daily chart, both our short-term oscillators gyrate around their equilibrium lines, confirming the trendless short-term picture.

• Support: 1186 (S1), 1170 (S2), 1160 (S3).

• Resistance: 1193 (R1), 1200 (R2), 1215 (R3).

WTI fell yesterday, but hit support around 58.40 (S2) again and then rebounded. WTI is trading between that key support line and the resistance of 59.85 (R2) since the 29th of April, therefore I would consider the short-term bias to be neutral. The trendless mode is also supported by our hourly oscillators. Both the 14-hour RSI and the hourly MACD oscillate around their equilibrium lines. On the daily chart, I still see a positive medium term outlook. The break above 55.00 on the 14th of April signalled the completion of a double bottom formation, something that could carry larger bullish implications in the not-too-distant future. However, I see negative divergence between both our daily momentum studies and the price action, hinting that a corrective move could be looming before buyers pull the trigger again.

• Support: 58.75 (S1), 58.40 (S2), 57.85 (S3).

• Resistance: 59.00 (R1) 59.85 (R2), 60.00 (R3).

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IronFX Daily Commentary | 06/05/15

Language English

Rising yields go along with rising oil prices Usually there is a consistent theme throughout the financial markets. It’s hard to explain what’s going on now however. The most notable point is that bond prices are crashing everywhere. But why? Usually bond prices fall (interest rates rise) when inflation is rising or when growth is accelerating. But inflation is no threat anywhere, growth if anything is disappointing on the downside (at least in the US), and the ECB continues to buy boatloads of bonds. With short-term yields remaining at or below zero, yield curves around the world are steepening sharply. That’s usually a harbinger of stronger growth to come. In that case, why are equities down across the board, too?

Perhaps the rebound in energy prices has something to do with it. Oil prices remain over $60/bbl as Libyan output slowed, Saudi Arabia raised its prices to Asia, and this week’s API figures showed the first net drawdown of US crude oil inventories in eight weeks. This is pushing gasoline prices up in the US and raising inflation expectations. A rise in oil prices due to a reduction in supply would be bad for growth, unlike a rise in prices caused by an increase in demand. It could be that the markets are starting to sense mild stagflation – a recovery in inflation before a recovery in growth. That would be bad for all markets.

China’s service sector is expanding The HSBC China services PMI rose to 52.9 in April from 52.3 the previous month, This softened the decline in the composite PMI to 51.3, down from 51.8. This is the kind of restructuring that the Chinese government wants to see as it attempts to steer the economy away from investment-led growth to consumption-led growth.

In theory that should be good for New Zealand’s exports of food products relative to Australia’s exports of industrial materials, but prices at Tuesday’s milk auction fell once again nonetheless. Plus the country’s unemployment rate unexpectedly rose to 5.8% from 5.7% -- the market had been expecting a decline to 5.5% -- even while the participation rate declined slightly. Not good! Wage growth also slowed. The news gives the Reserve Bank of New Zealand further reason to remain on hold or even ease rates. The news from Australia wasn’t that great – retail sales slowed in March, although they were still positive – but that was better than the news from New Zealand and AUD/NZD rose even further away from the parity that so many of us had expected – now at 1.0640, parity seems a long way away.

Today’s highlights: During the European day, we get the final service-sector PMIs for April from the countries we got the manufacturing data for on Monday. As usual, the final forecasts for France, Germany and Eurozone are the same as the initial estimates. Eurozone’s retail sales for March are coming out as well.

The ECB holds its regular weekly meeting, at which it will decide on the provision of liquidity to Greek banks. There is the possibility that they might increase the “haircut” on collateral that Greek banks put up for loans, which would severely constrain the Greek banking system.

The UK service-sector PMI is forecast to have slid to 58.5 in April from 58.9 in March. After the declines in the country’s manufacturing and construction PMIs for April, a slide in the service-sector PMI is very likely. This would be an additional evidence that the UK economy is losing momentum.

The main indicator for the day is the US ADP employment change for Apr, two days ahead of the nonfarm payroll release. The ADP report is expected to show that the private sector gained more jobs in April than it did in the previous month. Even though the ADP has relatively little predictive power for the initial payrolls figure, the market tends to treat it as if it’s a reliable indicator and so a figure like that would be taken as USD-bullish.

From Canada, Ivey PMI for April is to be released. The RBC manufacturing PMI released last Friday rose a bit, but stayed below the 50 level that divides contraction from expansion. The same is expected to happen to the more-closely-watched Ivey PMI. The index is forecast to have risen to 49.2 from 47.9 previously. Although the rise may support CAD, a failure to break above the 50 level could cause the effect to be minimal.

We have five speakers scheduled on Wednesday. During the European day, Fed Chair Janet Yellen and IMF Managing Director Christine Lagarde speak at a conference on finance and society. We also have speeches from Kansas City Fed President Esther George and Atlanta Fed President Dennis Lockhart. Riksbank Governor Stefan Ingves speaks as well.

Currency Titles:

EUR/USD rebounds from slightly above 1.1045

USD/CAD is headed towards 1.2000 again

Gold hits resistance near the round number of 1200

WTI soars above 60.00

GBP/JPY rebounds from 181.45

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EUR/USD rebounded from slightly above 1.1045 (S3) and is currently headed for another test at the resistance territory of 1.1260 (R1). This adds to my view that the short-term picture stays positive. However, I still prefer to see a clear close above the 1.1260 (R1) zone before I get more confident on the upside. Such a break could set the stage for extensions towards our next obstacle of 1.1375 (R2), defined by the peak of the 26th of February. Our momentum studies support the case for further advances, at least for another test at the 1.1260 (R1) area. The RSI rebounded from its 50 line and is now pointing north, while the MACD, already positive, has bottomed and could move above its trigger line soon. On the daily chart, the break above 1.1045 (S3) signaled the completion of a possible double bottom formation, something that could carry larger bullish implications.

• Support: 1.1170 (S1), 1.1080 (S2), 1.1045 (S3).

• Resistance: 1.1260 (R1), 1.1375 (R2), 1.1445 (R3).

USD/CAD traded somewhat lower after hitting resistance at 1.2085 (R1). I would now expect the pair to challenge again the psychological round number of 1.2000 (S1). A dip through that may challenge initially the 1.1940 (S2) line. Our short-term oscillators magnify the case for the occurrence of the aforementioned scenario. The RSI turned down after hitting resistance at its 50 line, while the MACD has fallen below both its zero and trigger lines. On the daily chart, the rate is trading very close to the longer-term uptrend taken from the low of the 11th of July. Therefore, a clear close below that line and the 1.1940 barrier is the move that would pull the trigger for a large leg down, perhaps towards the 1.1800 (S3) area, defined by the low of the 15th of January.

• Support: 1.2000 (S1), 1.1940 (S2), 1.1800 (S3).

• Resistance: 1.2085 (R1), 1.2130 (R2), 1.2200 (R3).

Gold edged higher on Tuesday after hitting support at 1186 (S2), broke above 1193 (S1) and hit resistance near the psychological line of 1200 (R1). A clear break above that barrier is likely to trigger larger bullish extensions and perhaps challenge the next resistance at 1215 (R2). Our momentum studies support the notion. The RSI stands above its 50 line and points up, while the MACD, already above its trigger, obtained a positive sign. Although the rebound may continue, with no clear trending structure on the 4-hour chart, I maintain my view that the outlook is neutral. On the daily chart, both our short-term oscillators gyrate around their equilibrium lines, confirming the trendless short-term picture.

• Support: 1193 (S1), 1186 (S2), 1170 (S3).

• Resistance: 1200 (R1), 1215 (R2), 1224 (R3).

WTI surged on Tuesday, breaking above the psychological round number of 60.00 (S3), while during the early European morning Wednesday, it broke above the 61.00 (S1) line. The break turned the near-term picture back positive and I would now expect the bulls to challenge the 62.00 (R1) line. A break above 62.00 (R1) is likely to prompt extensions towards the next resistance of 63.60 (R2). The 14-hour RSI is back above its 70 line, while the hourly MACD shows signs that it could rebound from near its trigger line. On the daily chart, I still see a positive medium term outlook. The break above 55.00 on the 14th of April signalled the completion of a double bottom formation, something that could carry larger bullish implications in the not-too-distant future.

• Support: 61.00 (S1), 60.35 (S2), 60.00 (S3).

• Resistance: 62.00 (R1) 63.60 (R2), 64.30 (R3).

GBP/JPY rebounded from near 181.45 (S1) and is now headed towards the resistance line of 182.80 (R1). I believe that a break above that resistance is likely to target the next hurdle at 183.75 (R2). Our short-term oscillators support the notion. The RSI is back above its 50 line and points north, while the MACD has bottomed slightly below its zero line and could cross above its trigger soon. On the daily chart, GBP/JPY is trading above both the 50- and the 200-day moving averages and this keeps the near-term trend intact. What is more, our daily oscillators detect positive momentum as well. The 14-day RSI rebounded from above its 50 line, while the daily MACD stands above both its trigger and zero lines.

• Support: 181.45 (S1), 180.65 (S2), 180.00 (S3).

• Resistance: 182.80 (R1), 183.75 (R2), 185.00 (R3).

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IronFX Daily Commentary | 07/05/15

Language English

ADP miss hits USD The dollar was down across the board after the US ADP report came in with only 175k jobs, below estimates of 200k. The fact is though that the ADP report is a fairly poor indicator of the nonfarm payrolls. As the graph to the right shows, the relation between the change in ADP and change in NFP is not statistically significant. Going back to 2001, the change in the NFP has been higher than the change in ADP 86 times and lower 85 times – exactly random! I’ve heard that the ADP report is a better forecaster of the final figure for NFP than it is of the preliminary figure – indeed, if I remember correctly, this person argued that it was better at forecasting the final NFP figure than the preliminary NFP figure itself was. However, I haven’t run those numbers myself so I can’t attest to it. Nonetheless, you can’t fight the market. If the market wants to take the ADP report as a preliminary estimate of the NFP figure it certainly will, and there’s no sense taking the opposite view. Expectations of a weak NFP on Friday simply lower the bar for a USD recovery then.

Fed funds expectations keep rising The disappointing data did not dampen Fed rate expectations. On the contrary, Fed fund futures show that rate expectations are higher than they were on 10 April, the day that DAX peaked and the Eurozone trade started to turn around, and are down only slightly from 13 March, the day the DXY index peaked. Indeed rate expectations were up 4.5 bps in the long end yesterday despite the disappointing ADP report. This may be because of Atlanta Fed President Lockhart’s comment that investors’ expectations of a rate hike in September is “reasonable.” “All meetings are in play, including June,” he said. What this says to me is that the dollar’s decline is more a matter of positioning than reassessing the fundamental situation and at some point the monetary divergence story will return and USD will resume its rise.

ECB puts off decision on Greek haircut till next week The ECB meeting yesterday reportedly raised the amount of Emergency Liquidity Assistance (ELA) that the ECB would supply to the Greek banks by EUR 2bn to EUR 78.9bn while putting off until next week a decision on whether to increase the haircut charged on collateral. One anonymous official was quoted as saying the ECB would increase the haircut unless the government shows a willingness to compromise in the bailout talks. The ECB apparently wants to see what happens at next Monday’s meeting of European finance ministers before pulling the plug. An EU official said the negotiations have made “good progress,” but there still seem to be some questions. Apparently next week is the crunch time, especially as Greece has to make a EUR 767mn payment to the IMF on Tuesday, May 12th.

Australia’s unemployment rate rises Australia’s unemployment rate rose to 6.2% from 6.1%, as expected. To make matters worse, the number of employed people fell, while the job mix worsened – fewer full-time jobs, more part-time jobs. Even though the RBA cut rates on Tuesday, the AUD has strengthened as the statement sounded a bit optimistic over the country’s fundamentals. Added to that the rise in iron ore prices, Australia’s main export, AUD remained well supported and could strengthen even more if iron ore prices continue to rise. AUD gained on the day despite the disappointing number, showing continued demand for AUD. I believe this strength is temporary from a fundamental point of view, but the technicals suggest further strength is in store. Watch for the quarterly Statement on Monetary Policy due out tomorrow, with an update on economic growth and inflation forecasts.

Today’s highlights: German factory orders rose 0.9% mom in March, a rebound from the decline in February but below expectations. From France, we get industrial production for March. Even though neither of these indicators is a major market mover, they could add to the recent positive data from Eurozone economies.

Norges Bank to stay on hold The main event during the European day will be the Norges Bank policy meeting. In their last meeting, the Bank surprised the market and kept its interest rates unchanged at 1.25%. The Bank argued that the effects of low oil prices on the real economy have been relatively small and house prices are still rising at a fast pace, justifying their decision to remain on hold. Since then, not much has changed fundamentally in the country and the rise in oil prices have been strengthening NOK. With Brent crude oil just below USD 70, we expect the Bank to remain on hold again, which could prove NOK-positive.

In the US, initial jobless claims for the week ended May 2 are coming out.

As for the speakers, Norges Bank Governor Oeystein Olsen holds a press conference after the rate decision. ECB Executive Board member Yves Mersch also speaks.

It’s UK election day! The UK election takes place during the day. The polls are open from 0700 to 2200 local time (0600 GMT to 2100 GMT). Immediately after the polls close, the first exit polls will be released. For the last two elections the major broadcasters have jointly commissioned exit polls, which has improved the accuracy of their predictions. In the 2010 and 2005 elections, the exit polls predicted the results exactly, while the 2001 exit poll was just 10 seats off. Of course, given how close this election is likely to be, 10 seats would be a big margin of error.

The first official results will probably start to be released around 2300 local time (2200 GMT) and will drip out a few constituencies at a time. The first two hours are usually dominated by safe Labour seats where the vote is easy to count. The results usually start coming more frequently after 0100 local time (0000 GMT). The largest group is due from 0200 to 0500 local time ( 0100 GMT to 0400 GMT), with around half due by 0300 local time (0200 GMT). By that time we should have a general feel for how it’s developing.

The last constituency will declare at around 1300 local time (1200 GMT) Friday morning. One complication is that local government elections will be taking place in most of England (not including London) at the same time, so the results from those constituencies will be known later. The latest polls and results from the betting odds suggest the following result:

• Conservatives 280-285
• Labour 265-270
• Liberal-Democrats 25
• Scottish Nat’l Party >50
• UKIP 3

Knowing the results are only half the story, if that. It’s almost certain that neither of the two major parties will get a majority (326 are necessary in theory, but since the 5 Northern Ireland representatives normally don’t take up their seats, 323 is the actual figure). The question then becomes which one can form a government. Last time, the negotiations started right away – there were hints in various MP’s acceptance speeches when the results of their constituencies were declared. Moreover, it was fairly straightforward then as the possibilities were limited. Even so, it took five days. This time around it could last until 27 May, when the government is required to submit a legislative program for the Queen’s Speech. If there is no government by then, or if the program fails to pass a vote in the House of Commons (which is possible if a minority party attempts to form a government) then the government would fall and either another party would try to form a government or there would be another election. I expect the political uncertainty to weigh on the pound and for the currency to weaken at least until agreement on the government has been reached.

Currency Titles:

EUR/USD breaks above 1.1260 following a weak ADP report

GBP/USD higher ahead of the UK general elections

AUD/USD continues higher

Gold tumbles back towards 1186

WTI hits resistance at 62.55 and tumbles

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EUR/USD surged on Thursday after the US ADP report showed that the private sector gained fewer jobs than expected in April. The pair broke above the key area of 1.1260 (S1) at the release and climbed to hit resistance fractionally below the 1.1375 (R1) barrier. This confirms a forthcoming higher high on the 4-hour chart and keeps the short-term picture positive, in my view. I believe that a move above 1.1375 (R1) is likely to set the stage for extensions towards our next resistance at 1.1445 (R2), marked by the peaks of the 13th, 17th and 19th of February. Our daily oscillators detect strong upside speed and amplify the case for further advances. The 14-day RSI entered its overbought territory, while the MACD stands above both its zero and signal lines pointing north. As for the broader trend, the break above 1.1045 signaled the completion of a possible double bottom formation, something that could carry larger bullish implications.

• Support: 1.1260 (S1), 1.1170 (S2), 1.1080 (S3).

• Resistance: 1.1375 (R1), 1.1445 (R2), 1.1500 (R3).

GBP/USD continued to trade higher on Thursday, but the advance was halted at the 50% retracement level of the 29th of April – 5th of May decline, fractionally below the 1.5300 (R1) resistance line. However, I still believe that the short-term outlook is negative and that this is only a pause before the bears seize control again. In my view, the near-term picture has turned negative after the violation of the uptrend line taken from the low of the 14th of April. A break below the support line of 1.5170 (S1) is likely to support the case and perhaps open the way for another test at the 1.5090 (S2) obstacle. On the daily chart, the rate is back below the 80-day exponential moving average, but since the possibility for a higher low still exists, I will adopt a flat stance as far as the overall outlook of Cable is concerned.

• Support: 1.5170 (S1), 1.5090 (S2), 1.4980 (S3).

• Resistance: 1.5300 (R1), 1.5400 (R2), 1.5500 (R3).

AUD/USD continued to trade higher, but yesterday hit resistance near 0.8025 (R1) and pulled back. Subsequently, the rate tested the 0.7920 (S1) line as a support this time and rebounded. I still see a somewhat positive near-term picture and therefore I would expect a move above 0.8025 (R1) to challenge again the 0.8065 (R2) territory. Our oscillators corroborate my view. The RSI, already above its 50 line, has turned up, while the MACD stays above both its zero and signal lines. In the bigger picture, the rebound from around 0.7800 (S3) confirmed a higher low on the daily chart, and this keeps the medium term picture positive as well.

• Support: 0.7920 (S1), 0.7860 (S2), 0.7800 (S3)

• Resistance: 0.8025 (R1), 0.8065 (R2), 0.8135 (R3)

Gold traded lower after hitting resistance at the psychological area of 1200 (R1). The decline was halted marginally above the support barrier of 1186 (S1), where a clear break is likely to pave the way for our next support at 1170 (S2). Our momentum studies support the notion. The RSI has turned down and fell again below 50, while the MACD has topped slightly above its zero line, obtained a negative sign and fell below its trigger line. Although the decline may continue, with no clear trending structure on the 4-hour chart, I maintain my view that the outlook is neutral. On the daily chart, both our short-term oscillators gyrate around their equilibrium lines, confirming the trendless short-term picture.

• Support: 1186 (S1), 1170 (S2), 1160 (S3).

• Resistance: 1200 (R1), 1215 (R2), 1224 (R3).

WTI continued to trade higher on Thursday, but after hitting resistance at 62.55 (R3), it fell sharply to settle slightly above 60.30 (S1). Despite the sharp decline, I believe that the short-term picture remains positive and there is a likelihood that we see the forthcoming wave to be positive. Our short-term oscillators leave the door open for the occurrence of the aforementioned scenario. The RSI, although below 50, has bottomed and could cross again above 50 soon, while the MACD shows signs that it could start bottoming. On the daily chart, I still see a positive medium term outlook. The break above 55.00 on the 14th of April signalled the completion of a double bottom formation, something that could carry larger bullish implications in the not-too-distant future.

• Support: 60.30 (S1), 60.00 (S2), 59.00 (S3).

• Resistance: 61.20 (R1) 62.00 (R2), 62.55 (R3).

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