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IronFX Daily Commentary | 04/06/15
Language English
Draghi fails to offer comfort After the recent bout of volatility in the bond market recent, investors were waiting to hear some comforting words from ECB President Draghi yesterday. However all he said was “get used to it.” He made the point that with interest rates at such low levels, bond prices are bound to be more volatile and “we should get used to periods of higher volatility” (this is just a function of bond mathematics). While this is true, it isn’t what people wanted to hear. They were hoping that he would say that the ECB would use its QE program to buy bonds when necessary to dampen the volatility, along the lines of what ECB Gov. Benoit Coeure had said recently. But on the contrary, he said that ” in terms of the impact that this might have on our monetary policy stance, the Governing Council was unanimous in its assessment that we should look through these developments and maintain a steady monetary policy stance.” As a result, German bond yields leapt higher once again, with 10-year yields up 17 bps. They’ve risen from 0.49% last Friday to 0.88% at yesterday’s close, i.e. almost doubling in less than a week. There is no longer any fear that the ECB might not be able to find enough bonds to buy at yields over the deposit rate of -0.2%.
Bunds drag up other bonds The surge in Bund yields dragged bond yields higher across the board. French 10-year yields were up 15 bps, while peripheral bond yields rose less – only 3 to 5 bps. But US Treasuries were dragged up 10 bps and even Japanese yields rose 5 bps. The correlation among global bond markets is quite striking. Nonetheless Bund yields did rise more than other markets and that helped to support the euro against most other currencies.
Attention to return to Greece Now that the ECB meeting is out of the way, attention may return to Greece. They seem to be making some progress but there remain unbridgeable gulfs. Apparently the creditors have moved closer to the Greek position on the primary budget surplus, but Greece has refused to concede any ground on several points, such as pensions, and those sticking points remain. Greek PM Tsipras said “don’t worry” about Friday’s EUR 300mn payment to the IMF, but that may be because he is planning on wrapping all the June payments into one to be made at the end of the month. That’s the one we should worry about.
The problem is that even if Tsipras signs an agreement soon, it would need to be approved by the Greek parliament, and that would require one of three things:
1. Passage through parliament, probably with support from the opposition parties or a change in the government coalition;
2. A referendum, followed by a vote in parliament (although that would probably take more than two weeks; or
3. An early election, followed by a vote. But time is running out!
I can’t say how the Greek situation will affect EUR today. I trust that Tsipras realizes how disastrous the failure to agree would be and so I expect him to cave in eventually, but no money will be disbursed until the Greek political process has run its course, and in this case you cannot trust the wisdom of crowds to do the right thing. It’s still possible that the result no one wants is what we get.
Dollar generally higher as US data support Nonetheless, the dollar was generally higher except against EUR and SEK (which even outperformed EUR). The ADP employment report hit estimates of 200k, a healthy number, while the April trade deficit was narrower than expected as imports fell – that will boost net exports in the Q2 GDP figures. The market ignored a larger-than-expected drop in the Market service-sector PMI and Fed funds rate expectations rose sharply (up 8 bps at end-2017). Commodity currencies, including CAD, were weak as oil prices plunged. The symposium between OPEC members and oil industry specialists got under way and all the indications were that the organization would not reduce production at tomorrow’s meeting. On the contrary, Iraq said it will increase its exports this month and Iran is discussing how it’s going to increase its output once sanctions are removed. I would expect to get more such news today from the symposium and for the commodity currencies to remain under pressure.
Australia’s trade deficit widens sharply AUD was the weakest of the G10 currencies over the last 24 hours as the country’s trade deficit widened sharply and retail sales were unchanged in April, both below estimates. This disappointing news suggests that the economy will not get a boost from either foreign nor domestic demand. I remain bearish on AUD as China continues to restructure its economy, which is bound to involve less demand for Australia’s industrial commodities.
Today’s highlights: During the European day, the Bank of England holds its policy meeting. There’s little chance of a change in policy, hence the impact on the market could be minimal, as usual. The minutes of the meeting however should make interesting reading when they are released on 17th of June.
From Canada, we get the Ivey PMI for May. Following the rise in the RBC manufacturing PMI on Monday, we could see a positive surprise in the Ivey figure as well. Nevertheless, the decline in oil prices ahead of the OPEC meeting on Friday, are likely to keep CAD under increased selling pressure.
In the US, we get the initial jobless claims for the week ended May 30.
We have several speakers on Thursday’s agenda: ECB Executive Board member Yves Mersch, Governing council member Erkki Liikanen, ECB Governing council member Klaas Knot, Riksbank Governor Stefan Ingves and Fed Governor Daniel Tarullo.
Currency Titles:
EUR/USD higher after finding support near the 1.1065 level
GBP/USD in a sideways mode
USD/JPY consolidates within a range
DAX futures stays above the long-term uptrend line
WTI gyrates around 60
Currencies Image Url:
https://shared.ironfx.com/Morning_Pictures_2015/June2015/June04/EURUSD.PNG
https://shared.ironfx.com/Morning_Pictures_2015/June2015/June04/GBPUSD.PNG
https://shared.ironfx.com/Morning_Pictures_2015/June2015/June04/USDJPY.PNG
https://shared.ironfx.com/Morning_Pictures_2015/June2015/June04/DAX%20futures.PNG
https://shared.ironfx.com/Morning_Pictures_2015/June2015/June04/WTI.PNG
Currencies Text:
EUR/USD declined a bit on Wednesday after ECB President Draghi admitted a slight loss of momentum in the recovery, but following a comment over the improvement in the perspectives of growth and higher inflation expectations, Bund yields surged and dragged EUR with them. The move was halted slightly above our prior 1.1265 resistance line but as I was not convinced of a clear break, I moved the level to 1.1275 (R1). I would expect a clear break of 1.1275 (R1) to trigger extensions towards our next resistance of 1.1330 (R2). The RSI found support at its 70 line and points up, while the MACD lies above its zero and trigger lines, meaning that both these short-term momentum indicators are in overbought territory. This suggests accelerating bullish momentum, but also that a minor pullback is possible before the next leg high.
• Support: 1.1200 (S1), 1.1115 (S2), 1.1065 (S3) .
• Resistance: 1.1275 (R1), 1.1330 (R2), 1.1390 (R3).
GBP/USD declined on Wednesday after several unsuccessful attempts to break the 1.5365 (R1) resistance hurdle, but found renewed buy orders few pips above our 1.5230 (S1) support line. During the European morning Thursday the pair trades just below the 200-period moving average and a fall below it would add to the negative short-term picture. Our near-term momentum indicators support this notion as the RSI seems ready to cross below its 50 line, while the MACD has topped around its zero line and could turn down again. On the daily chart, the rate remained above the 80-day exponential moving average, which keeps broader picture cautiously positive.
• Support: 1.5230 (S1) 1.5160 (S2), 1.5100 (S3) .
• Resistance: 1.5365 (R1), 1.5440 (R2), 1.5525 (R3).
USD/JPY remained locked in a consolidation mode, within a range of 124.00 (S1) and 125.00 (R1). I will hold the view that the price is moving within a sideways path and a break in either direction is needed to determine the forthcoming near-term bias. The negative divergence seen in our short-term momentum indicators supports the scenario that the next move is more likely to be downwards. Nevertheless, I would treat any declines as a corrective phase of the larger uptrend that could provide renewed buying opportunities. On the daily chart, the pair lies above both its 50- and 200-day moving averages that keep the longer-term bullish trend intact.
• Support: 124.00 (S1), 123.50 (S2), 122.80 (S3).
• Resistance: 125.00 (R1), 125.80 (R2), 126.60 (R3).
DAX futures rose on Wednesday after finding support at the crossroad of the 11290 (S1) area and the long-term uptrend line taken from back at the low of the 16th of October. I would now expect the bulls to boost the index higher towards the 11475 (R1) resistance line, and a break of that zone could trigger further advances perhaps towards our next resistance of 11585 (R2). The near-term momentum indicators favour this notion, as the RSI rebounded from its 30 line and heads higher, while the MACD, although negative, has bottomed and crossed above its signal line. On the daily chart, the fact that the index is still above the long-term black line indicates that the upside path remains intact, in my view. Only if the index falls below that line would the medium-term picture switch to the downside.
• Support: 11290 (S1), 11170 (S2), 10975 (S3).
• Resistance: 11475 (R1), 11585 (R2), 11685 (R3) .
WTI broke below our support-turned into-resistance level of 60.70 (R1) but the move was halted near our support zone of 59.45 (S1). Investors’ restrained mood ahead of the OPEC meeting on Friday is reflected in the price action, as there is no clear trending direction. WTI gyrates around 60 and is not giving any clear directional impulses, which can be also observed in the short- and medium-term momentum indicators. The near-term RSI moves along its 50 level, while the MACD, although slightly below its trigger line, stands just above its zero line and points sideways. A similar picture is seen on our daily momentums. Therefore, I would like to adopt a neutral bias at least for now, until we have a better technical picture.
• Support: 59.45 (S1), 58.60 (S2), 57.90 (S3).
• Resistance: 60.70 (R1), 61.35 (R2), 61.80 (R3) .
Benchmark Currency Rates:
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IronFX Daily Commentary | 05/06/15
Language English
Bond market volatility continues ECB President Draghi was right when he said that we’d just have to get used to greater volatility in the bond market. Yesterday the yield on the 10-year Bund went from 0.89% at Wednesday’s close to 0.996% -- almost 1% -- at the peak before finishing the day down around 0.84%, lower than Wednesday’s close, after IMF Managing Director Lagarde downgraded US economic growth prospects and called on the Fed to hold off its first rate hike. The 10-year Treasury also had an 12-bp range on the day.
Greek drama intensifies During her press conference yesterday, Lagarde said that Greece was going to make the EUR 300mn payment that’s due today, but then later in the day, the country announced that it would delay the payment to the end of the month. This is within the (rarely used) IMF rules, which say that if a country has several payments to make in one month, it can bundle them all together and make one payment at the end of the month. Nonetheless the delay is a bad sign because it implies that a) Greece doesn’t have the money to make today’s payment and b) expects the negotiations to drag on for longer. In fact the country did reject the creditors’ proposal as “unacceptable,” which makes me wonder what other agreement they would prefer to accept? Tsipras may believe he can get an agreement through Parliament by the end of the month, or perhaps he hopes that the US and IMF will put pressure on the EU authorities and further brinksmanship will win further concessions. I doubt it. I think he will eventually have to call a referendum to get a new mandate that will enable him to accept the unacceptable.
We should watch next Wednesday’s decision by the ECB on the Greek Emergency Liquidity Assistance (ELA) to gauge how the creditors view this move. I expect they will not be happy and at the very least will not increase the ELA. The Eurogroup of EU finance ministers says it expects Greece to respond to the proposal by next Monday, and officials are reportedly pressing for an agreement to be finalized by Sunday, June 14th. In any event the country will have to reach a settlement by the end of the month, not only because the IMF payments are due then but also because its overall financing program expires at the end of June anyway. The IMF requires assurances that a country is fully financed for the next twelve months before it will participate in a financing program, meaning if they do not come to an agreement, the IMF will withdraw its financing, and that’s that. So one way or another this drama, which has been running for some five years, should be resolved one way or the other in the next three weeks.
EUR/USD basically followed Bund yields up and then back down yesterday. This morning the dollar is higher against most currencies after some good US data yesterday. Challenger job cuts were down 23% yoy, initial jobless claims fell, while unit labor costs rose more than expected, indicating that the tighter labor market may finally be feeding through to higher wages.
Today’s highlights: Friday is a relatively light day as far as data releases are concerned. During the European day, we get German factory orders for April and Norway’s industrial production for the same month.
The main event of the day will be the US nonfarm payrolls! The market forecast for May is for an increase in payrolls of 226k, about the same as the 223k in April. Another reading above 200k could suggest that the US labor market is gathering steam again and is likely to boost USD across the board as it would leave the September rate hike scenario alive. At the same time, the unemployment rate is forecast to remain unchanged at 5.4%, while average hourly earnings are expected to rise at the same pace as in April.
Canada’s unemployment rate for May is also due to be released.
The OPEC meeting starts today. The organization is widely expected to keep its production target unchanged at 30mn barrels per day, especially after the rebound in prices from their January lows. Saudi Arabia has made clear it wants to continue to defend market share rather than prices. The UAE oil minister said that “nothing significant” will happen at the meeting, which itself is significant; it means they will continue to overproduce. If there is a surprise it’s likely to be on the upside. The group already pumps above the quota (31.58mn barrels a day in May, according to Bloomberg) and has done for the last year. They could make that official and increase the production target. That would probably put further downward pressure on oil prices. Lower oil prices are a negative for CAD, NOK and AUD especially. JPY, CHF, and EUR tend to be uncorrelated with oil prices.
Greek PM Tsipras will address the Greek Parliament at 1800 local time to brief MPs on the negotiations. The address will be followed by a debate. Some of the SYRIZA MPs are suggesting that they call new elections to get a fresh mandate, otherwise they cannot accept the proposals.
Over the weekend there will be a G7 meeting in Bavaria, Germany. German Chancellor Merkel is trying to prevent Greece from dominating the discussion as she wants to keep the focus on Ukraine.
Turkey holds elections Sunday.
Currency Titles:
EUR/USD declined after finding resistance near the 1.1380 level
GBP/USD a touch below the 1.5365
USD/JPY consolidates within a range
Gold trades along the upper boundary of the channel
WTI just above 58
Currencies Image Url:
https://shared.ironfx.com/Morning_Pictures_2015/June2015/June05/EURUSD.PNG
https://shared.ironfx.com/Morning_Pictures_2015/June2015/June05/GBPUSD.PNG
https://shared.ironfx.com/Morning_Pictures_2015/June2015/June05/USDJPY.PNG
https://shared.ironfx.com/Morning_Pictures_2015/June2015/June05/XAUUSD.PNG
https://shared.ironfx.com/Morning_Pictures_2015/June2015/June05/WTI.PNG
Currencies Text:
EUR/USD spiked up on Thursday, breaking two resistance lines in a row, after a heavy selloff in the bond market. The pair found resistance at the 1.1380 (R3) hurdle, and fell again to trade slightly above 1.1190 (S1) support area. Today the US employment report is expected to show another solid rise in payrolls that could strengthen USD across the board. Therefore we could see a test of our next support zone of 1.1115 (S2). This notion is supported by our short-term momentum signs as the RSI lies just above its 50 line pointing sideways, while the MACD has topped and crossed below its trigger line. In case of a disappointing US figure, the pair could bounce up towards the 1.1330 (R2) again.
• Support: 1.11900 (S1), 1.1115 (S2), 1.1065 (S3) .
• Resistance: 1.1275 (R1), 1.1330 (R2), 1.1380 (R3).
GBP/USD broke above the 1.5365 (R1) zone on Thursday but found resistance at 1.5440 (R2) and fell again to trade a touch below 1.5365 (R1). Given the inability of buyers to hold the rate higher and the expectations of a strong US employment report later in the day, I would expect the next wave to be to the downside. Cable could decline for a test of the 1.5230 (S1) level. A clear break of that line could trigger further bearish extensions, perhaps towards our next support of 1.5160 (S2). Our near-term momentum indicators support the scenario of a decline. The RSI lies just above its 50 level pointing down, while the MACD show signs of topping and seems willing to cross below its trigger line. On the daily chart, the rate remained above the 80-day exponential moving average, which keeps the broader picture cautiously positive.
• Support: 1.5230 (S1) 1.5160 (S2), 1.5100 (S3) .
• Resistance: 1.5365 (R1), 1.5440 (R2), 1.5525 (R3).
USD/JPY remained locked in a consolidation mode within the range of 124.00 (S1) and 125.00 (R1). My view is that the price is moving within a sideways path and a break in either direction is needed to determine the forthcoming near-term bias. The negative divergence seen in our short-term momentum indicators support my stance to sit on the sidelines and wait for the break to occur. Nevertheless, I would treat any declines as a corrective phase of the larger uptrend that could provide renewed buying opportunities. On the daily chart, the pair lies above both its 50- and 200-day moving averages that keep the longer-term bullish trend intact.
• Support: 124.00 (S1), 123.50 (S2), 122.80 (S3).
• Resistance: 125.00 (R1), 125.80 (R2), 126.60 (R3).
Gold fell below the support-turned-into resistance level of 1180 (R1), but found support at the upper boundary of the black downside channel and the 1172 (S1) support zone. A decisive break of that level is needed for further downside extensions, perhaps towards our next support level of 1162 (S2). However, I would be cautious for a minor bounce up for another test of the 1180 (R1) resistance hurdle before the next leg down. Looking at our short-term momentum indicators the RSI found support at its 30 line and moved a bit up, while the MACD show signs of bottoming and seems willing to turn around. These momentum signs support my view for a minor advance before we see further declines.
• Support: 1172 (S1), 1162 (S2), 1155 (S3).
• Resistance: 1180 (R1), 1185 (R2), 1195 (R3).
WTI plunged on Thursday and broke two support lines in a row as the likelihood of no change – or even an increase -- in OPEC’s output target at today’s OPEC meeting increases. The decline was halted at our support zone of 57.90 (S1) and a break of that level could push the prices even lower, perhaps off a test our next support of 57.40 (S2). Looking at our momentum indicators, prices are more likely to trend down than up. The RSI lies slightly above its 30 line but is pointing sideways, while the MACD, stands below its zero and trigger lines and seems willing to move further into its negative territory. On the daily chart, WTI is trading slightly above the 50-day moving average that has been a good tracker of the price action recently. Therefore, we could see a decline towards the crossroad of that moving average and the 57.40 (S2) line before the next leg higher. Overall, I would treat any declines that stay limited above 55.00 as a corrective phase for now.
• Support: 59.45 (S1), 58.60 (S2), 57.90 (S3).
• Resistance: 60.70 (R1), 61.35 (R2), 61.80 (R3) .
Benchmark Currency Rates:
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Market Summary Url:
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IronFX Daily Commentary | 08/06/15
Language English
Greece to dominate the markets this week After an eventful week last week, the calendar this week is rather sparse. The Reserve Bank of New Zealand (RBNZ) meeting on Thursday is probably the highlight, followed later in the day by the US retail sales for May (see below). I expect the dollar to remain well supported this week in the aftermath of the much better-than-expected employment data for May, especially ahead of the FOMC meeting next week. Although few people expect the Committee to move this month, they could change the tone of their statement to take into account the continued improvement in the labor market.
With few major indicators out and the market waiting for the FOMC meeting, the focus will remain on Greece. PM Tsipras’ speech to the Greek parliament on Friday got terrible reviews by the country’s creditors, who according to press reports are losing patience (I’m surprised they have any left.) EC President Juncker Sunday accused Tsipras of distorting the creditors’ proposals and urged him to put forward alternative proposals swiftly to allow negotiations this week. Tsipras may meet EU leaders on the sidelines of an EU-Latin America summit in Brussels on Wednesday. The Bank of Greece Friday reportedly asked the ECB to increase the limit on Emergency Liquidity Assistance (ELA) that the ECB provides to compensate for withdrawals from the banking system. Watch what the ECB decides to do about the ELA at its regular weekly meeting Wednesday. I suspect that once again it will not increase the amount, which will show its displeasure and increase the pressure on Greece. This is likely to be EUR-negative. Note that on Friday, the Athens stock market was down 5% vs -1.3% for the overall European market, while Greek bank stocks plunged 11.3%. This shows that the locals are turning more pessimistic about a successful resolution of the crisis – not an encouraging sign!
Turkish government loses vote; TRY plunges The government of President Recep Tayyip Erdogan lost its majority in parliament in the elections over the weekend, winning only 258 seats, 18 short of the number needed for a majority. There will now be either a fragile minority administration, a prolonged period of bargaining among parties, or yet another election, none of which are good for the currency. The constitution requires a coalition to be formed within 45 days, but all three major opposition parties indicated that they don’t want to form an alliance with the ruling AK Party. This means a short-lived minority government is the most likely outcome. TRY has hit a record low this morning. Given the prospect of increased political instability and uncertainty about economic policy, I would not want to try to catch this falling knife.
Japan’s Q1 GDP revised up, April current account surplus shrinks Japan’s Q1 GDP was revised up to 3.9% qoq SAAR from 2.4%, far exceeding market estimates (2.8%). Upward revisions to business investment (good) and inventory buildup (bad) were behind the revision. The news is positive for JPY as it means less need for the Bank of Japan to increase its stimulus and indeed USD/JPY did move lower on the news. However I would point out that the current account balance shrank in April from the previous month, with the trade balance unexpectedly moving into deficit on a balance-of-payments basis. I think the government will want to keep the trade balance in surplus and thus I don’t think the political pressure for a weaker yen has ended. I would think USD/JPY might be likely to move back up today.
Chinese imports fall faster than expected = AUD-negative China’s trade surplus rose in May, but not because of any export surge; on the contrary, exports were down slightly on a yoy basis, while imports collapsed. The weak imports suggest that domestic demand is not recovering despite the government’s efforts to stimulate the economy. This is bad news for AUD in particular and NZD as well.
Today’s highlights: During the European day, we get is the German industrial production for April.
In the US, we get the labor market conditions index for May. This is a monthly index that draws on a range of data to produce a single measure to gauge whether the labor market is on the whole improving. The LMCI index, although not major market mover, summarizes the broad US labor situation in one number and shows whether the Fed is on track to achieve its mandate of “maximum employment.” So far it’s saying no, but the market seems to be thinking differently. There are no forecasts available but I would think that this month’s figure would be somewhat higher, as the labor market data in May was fairly good (higher NFP, lower unemployment, higher participation rate). That could help to extend Friday’s positive sentiment about the dollar.
On Tuesday, we get China’s CPI and PPI data for May. The forecast is for the CPI rate to slow to +1.4% yoy from +1.5% yoy, while the PPI rate is anticipated to fall at a slower pace than in the month before. The slight deceleration in the CPI and the stagnation of the PPI rate in deflationary territory could suggest that the easing measures taken so far has yet to make their way into the real economy. This may also increase the pressure on PBoC to act again in the near future. From the US, the Job Openings and Labor Turnover Survey (JOLTS) brings the “quit rate,” a closely watched indicator of how strong the job market is.
On Wednesday, Norway releases the CPI for May. Uniquely among the G10, their CPI rate is still close to the central bank’s 2.5% target, even though it declined to 2.1% yoy in April vs 2.3% yoy in March. Given that Norges Bank mentioned the possibility for a rate cut in June at their last policy meeting, there will be increased interest on the CPI data for May and any other data going forward the meeting. Therefore, despite the solid growth figures that took off some pressure from the Bank to act, another disappointment in the CPI figure could hint a rate cut and put NOK under increased selling pressure.
In the UK, industrial production for April is coming out. Following the disappointment in the manufacturing and service-sector PMIs, expectations for a broad rebound in the nation’s growth has lessened. The forecast is for the monthly figure to remain unchanged while the annual rate is expected to decelerate. A strong positive surprise in industrial production is needed to keep the scenario for a rebound in Q2 alive and keep the UK on a recovery path.
On Thursday, the highlight of the day will be the RBNZ policy meeting. At their last meeting, the Bank dropped the line about “a period of stability in the OCR” and “future interest rate adjustments, either up or down…” and instead, it said only that “it 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, the Bank turned dovish and no longer mentioned the conditions for raising rates, but only for dropping them. The market is not looking for a cut at rates at this meeting, but is discounting at least two more cuts by the end of the year. I would expect the statement to have a dovish tone, which could weaken NZD.
As for the indicators, US retail sales for May are expected to accelerate. Admittedly, April’s retail sales figures were puzzling soft and USD plunged in May after the flat reading. However, a positive surprise could ease market concerns, which have been looking for signs that the soft Q1 is coming to an end.
Finally on Friday, the only noteworthy indicator we get is the preliminary University of Michigan consumer sentiment index for June. The forecast is for the index to tick up a bit from the previous month. The surveys of 1-year and 5-to-10 year inflation expectation outlook are also coming out.
Currency Titles:
EUR/USD falls after a strong US jobs report
GBP/USD hits support around 1.5185
USD/JPY hits 125.85
Gold rebounds from 1162
WTI hits resistance at 59.20
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https://shared.ironfx.com/Morning_Pictures_2015/June2015/June08/USDJPY_08June2015.PNG
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Currencies Text:
EUR/USD tumbled on Friday after US nonfarm payrolls rose 280k in May, exceeding forecasts of 220k. The rate fell below the support (now turned into resistance) barrier of 1.1180 (R1) and found support at the 1.1045 (S1) hurdle. In my view, the fall does not yet signal a decisive change in sentiment. I believe the move that could carry larger bearish extensions is a clear break below the psychological line of 1.1000 (S2). Something like that is likely to pave the way for our next support area, around 1.0890 (S3). The oscillators on the 4-hour chart confirm Friday’s negative momentum. The RSI fell below its 50 line, while the MACD has topped and fallen below its trigger line. On the 1-hour chart however, the hourly oscillators give evidence that a bounce could be looming before the bears shoot again. The 14-hour RSI exited its oversold territory, while the hourly MACD has bottomed and crossed above its trigger line. On the daily chart, I see a possible evening star candle formation, which increases the possibilities for further declines in the not-too-distant future.
• Support: 1.1045 (S1), 1.1000 (S2), 1.0890 (S3).
• Resistance: 1.1180 (R1), 1.1280 (R2), 1.1370 (R3).
GBP/USD tumbled on Friday after the strong US employment data, but the decline was halted by the 1.5185 (S1) support field. As long as the rate is trading below the uptrend line taken from back at the low of the 13th of April, and below the downtrend line drawn from the peak of the 15th of May, the short-term outlook stays bearish in my view. A decisive break below 1.5185 (S1) is likely to pull the trigger for our next obstacle, at 1.5085 (S2). Our short-term oscillators reveal negative momentum. The RSI stands below its 50 line, while the MACD lies below both its zero and signal lines. Switching to the daily chart, the rate is now trading marginally below the 80-day exponential moving average, increasing the odds that the rate could trade lower in the not-too-distant future.
• Support: 1.5185 (S1) 1.5085 (S2), 1.5000 (S3).
• Resistance: 1.5300 (R1), 1.5440 (R2), 1.5500 (R3).
USD/JPY soared on Friday and hit resistance at 125.85 (R1), a resistance zone defined by the peak of the 5th of December 2002. The short-term picture remains positive in my view, and therefore I would expect a clear break above 125.85 (R1) to set the stage for extensions towards our next hurdle, at 126.75 (R2), marked by the inside swing lows of the 3rd and 7th of March 2002. Nevertheless, having in mind that the RSI hits resistance at its 70 line and turned down, I would be careful of a possible pullback before the bulls prevail again. On the daily chart, the break above the 122.00 zone confirmed a forthcoming higher high and triggered the continuation of the long-term upside path.
• Support: 125.00 (S1), 124.65 (S2), 123.75 (S3).
• Resistance: 125.85 (R1), 126.75 (R2), 128.40 (R3).
Gold fell on Friday, but hit some buy orders at 1162 (S2) and rebounded to trade virtually unchanged. During the early European morning Monday, the metal is trading slightly below the resistance barrier of 1179 (R1), and although the short-term picture is negative, I see signs that the rebound may continue. The RSI exited its oversold territory, while the MACD has bottomed and could move above its trigger line soon. There is also positive divergence between both the indicators and the price action. If the bulls manage to drive the battle above 1179 (R1), I would expect them to target our next resistance at 1185 (R2). On the daily chart, the move below 1169 (S1) gives a first sign that the overall outlook has probably turned negative. This is also supported by our daily oscillators. The 14-day RSI stands below its 50 line, while the daily MACD lies below both its signal and zero lines.
• Support: 1169 (S1), 1162 (S2), 1153 (S3).
• Resistance: 1179 (R1), 1185 (R2), 1195 (R3).
WTI rallied on Friday, but hit resistance at the 59.20 (R1) line, which happens to be the 50% retracement level of the 2nd – 5th of June decline, and currently coincides with the 200-hour moving average. Subsequently, WTI retreated. A break above 59.20 (R1) is now needed to trigger additional bullish extensions, perhaps towards the round number of 60.00 (R2). Our hourly momentum studies however give evidence that further pullback could be on the cards. The 14-hour RSI slide towards its 50 line and could cross below it soon, while the hourly MACD, although positive, has topped and could fall below its trigger. As for the broader trend, 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 declines that stay limited above 55.00 as a corrective phase for now.
• Support: 58.35 (S1), 57.70 (S2), 57.25 (S3).
• Resistance: 59.20 (R1) 60.00 (R2), 60.85 (R3) .
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IronFX Daily Commentary | 09/06/15
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USD has the usual post-NFP reversal It’s the usual pattern. Over the last year (at least), whatever way EUR/USD has moved on payroll Friday, it’s reversed the movement the following Monday nine times out of 12. So it shouldn’t have been a surprise when it did so again yesterday, filling the payroll gap and more. The trigger was apparently a statement by a French official that President Obama had criticized the strength of the dollar, but even though he quickly denied having said anything like that – and Italian PM Renzi confirmed that there were no big discussions about currencies – the dollar kept reversing. Probably the reason is interest rate differentials: 10-year Bund yields were up 3.5 bps yesterday even though the ECB has accelerated its purchase, while 10-year Treasury yields declined 2.5 bps and Fed funds expectations retreated 3.5 bps (although they are still both well above their pre-payroll levels). As a result, USD fell against all the G10 currencies yesterday. It’s now lower than it was before the payroll figure against EUR, GBP, CHF, CAD and SEK. It remains higher vs JPY, AUD, NZD and NOK.
Personally, I think this reversal is overdone. I still think we are on schedule for the first Fed rate hike in September. However, there are a lot of wounded dollar bulls out there and it may take some time before confidence comes back. Friday’s Commitment of Traders (COT) report showed that investors had boosted their short EUR positions and increased their long DXY positions last week, so they may be reluctant to boost them any more for now. Moreover, as the table shows, the market’s pattern between post-NFP Monday and Tuesday is much less consistent than between Friday and Monday. While Monday reversed Friday’s move nine times out of the last 12, Tuesday’s move reversed Monday’s only six times – in other words, exactly what you would expect from a random pattern.
Nonetheless, we could see a rally today if the employment indices in the National Federation of Independent Businesses (NFIB) are positive and the JOLTS survey is good – two employment-related indicators coming out later today that may remind people that after Friday’s payroll figure, we are nearer to fulfilling half of the Fed’s mandate (see below). Still, the economic data from Germany and Japan is looking better too, so the argument for the dollar is not as one-sided as it was a few months ago.
TRY likely to remain weak One currency that didn’t gain vs USD yesterday was TRY, which fell nearly 5%. Although the trigger was of course the uncertainty caused by the ruling AK Party losing its majority in parliament, there are good reasons why TRY was likely to remain weak regardless (although maybe not that weak). These include: high inflation (8.1% yoy), an extremely wide current account deficit (forecast at -4.8% of GDP this year), a rapid build-up of private sector debt, and of course the expected start of a Fed tightening cycle, which is likely to drain funds from all EM countries and make it harder for Turkey to fund its current account deficit and repay its debt. I expect the currency to continue to lose ground vs USD and EUR as the political situation makes it even harder to deal with these economic problems.
Abe comments boost USD/JPY Although the dollar fell against JPY too yesterday, it fell relatively less after Japanese PM Abe said that a weaker yen has “a positive impact” on Japanese companies doing business overseas and helps attract tourists to Japan. “Generally, we think it is desirable to see the exchange rate be stable based upon economic fundamentals,” he said, which is the usual kind of meaningless comment that political figures make about the exchange rate. Basically they don’t like sudden movements in the exchange rate, but it appears to me that officialdom does not mind a gradual weakening in the currency to support Japanese exports.
China CPI slows more than expected Consumer prices rose only 1.2% yoy in May, down from 1.5% yoy in April, while producer prices fell faster than expected -- -4.6% instead of the expected -4.5%. In other words, no signs of any change in the disinflation picture in China. The low level of inflation reflects manufacturing overcapacity meeting weak demand – not a good prospect for AUD and NZD. That may be why those two have not regained their pre-payroll level. They are likely to remain relatively weak, in my view.
Today’s highlights: During the European day, Eurozone’s final GDP for Q1 is forecast to confirm the preliminary print and show a rise of 0.4% qoq.
In the UK, the trade deficit for April is forecast to narrow a bit to GBP 2.6bn from GBP 2.8bn the month before. This figure is not particularly market-affecting; over the last six months, the maximum impact on GBP/USD in the following hour was ±0.2%, with most instances not moving the pair more than ±0.1%. Most of the impact is in the first 10 minutes after the release.
In the US, only data of secondary importance are coming out. The NFIB small business optimism for May is expected to have increased a bit. While this indicator is not particularly market-affecting, it’s well worth watching because of the Fed’s emphasis on employment. Small businesses employ the majority of people in the US, so this indicator’s sub-indices on employment are closely watched. For example, the “companies planning to raise workers' compensation” series is a fairly good leading indicator of the Employment Cost Index nine months later. The Job Opening and Labor Turnover Survey (JOLTS) report for April is also due out. Job openings are expected to have increased modestly to 5.044mn from 4.994mn the previous month. This survey will bring also the “quit rate,” a closely watched indicator of how strong the job market is. This indicator is slowly getting back to where it was before the Lehman Bros. collapse, which would signal that confidence in the job market was back to normal – a positive sign for the Fed. Wholesale inventories for April are also coming out.
As for the speakers, National Bank of Slovakia Governor and ECB Governing Council member Jozef Makuch speaks.
Currency Titles:
EUR/USD recovers the NFP losses
EUR/GBP hits support at 0.7265 and shoots up
AUD/USD rebounds from 0.7600
Gold trades virtually unchanged
DAX futures reverse the medium-term uptrend
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EUR/USD soared on Monday, recovering all the NFP losses and gaining even more. The pair emerged above the resistance (now turned into support) of 1.1280 (S1) and could now be headed towards 1.1370 (R1). A break above that line though is needed to confirm a forthcoming higher high on the 4-hour chart and perhaps turn the short-term picture to the upside. Such a move could prompt extensions towards our next resistance of 1.1465 (R2). Yesterday’s positive sentiment is printed on our momentum studies as well. The RSI is back above its 50 line is now headed towards its 70 line, while the MACD, already positive, has bottomed and moved above its trigger line. In the bigger picture, I believe that the move that could carry larger bullish implications is a clear close above the psychological zone of 1.1500 (R3).
• Support: 1.1280 (S1), 1.1180 (S2), 1.1045 (S3).
• Resistance: 1.1370 (R1), 1.1465 (R2), 1.1500 (R3).
EUR/GBP jumped on Tuesday after hitting support at 0.7265 (S2), which stands slightly above the 38.2% retracement level of the 27th of May – 4th of June advance. The rate raced above the resistance (turned into support) of 0.7360 (S1) and now looks ready to challenge Thursday’s peak of 0.7385 (R1). A decisive break above that hurdle would confirm a forthcoming higher high and is likely to set the stage for extensions towards the next one at 0.7430 (R2). Our short-term oscillators detect strong upside speed and magnify the case that EUR/GBP could trade higher. The RSI rebounded from near its 50 line and is now headed towards its 70 line, while the MACD, already positive, has bottomed and poked its nose above its trigger line. On the daily chart, the pair has been trading in a non-trending mode since mid-March. Therefore, although I would expect some near-term advances, I would consider the overall outlook to be neutral.
• Support: 0.7360 (S1), 0.7265 (S2), 0.7200 (S3).
• Resistance: 0.7385 (R1) 0.7430 (R2), 0.7485 (R3).
AUD/USD raced higher on Monday after hitting support at 0.7600 (S2). During the European morning Tuesday, the rate hit resistance slightly below 0.7730 (R1) and retreated somewhat. I would expect a clear move through that resistance to pull the trigger for the next one at 0.7815 (R2), which is defined by the peak of the 3rd of June and also happens to be the 38.2% retracement level of the 14th of May – 1st of June decline. Our momentum studies support further advances. The RSI looks able to rebound from its 50 line, while the MACD, although negative, has bottomed and crossed above its trigger line. There is also positive divergence between both these indicators and the price action. As for the broader trend, a clear close below the psychological zone of 0.7500 (S3) is the move that could trigger the resumption of the prevailing longer-term downtrend.
• Support: 0.7670 (S1), 0.7600 (S2), 0.7550 (S3).
• Resistance: 0.7730 (R1), 0.7815 (R2), 0.7865 (R3).
Gold slid on Monday, hit support at 1169 (S1), but then rebounded to trade virtually unchanged. During the early European morning Tuesday, the metal is trading below the resistance barrier of 1179 (R1), and although the short-term picture is negative, I see signs that we may experience further upside correction. The RSI raced higher and is now slightly below its 50 line, while the MACD has bottomed, crossed above its trigger line, and points north. There is still positive divergence between both the indicators and the price action. If the bulls manage to drive the battle above 1179 (R1), I would expect them to target our next resistance at 1185 (R2). On the daily chart, the move below 1169 (S1) gives a first sign that the overall outlook has probably turned negative. This is also supported by our daily oscillators. The 14-day RSI stands below its 50 line, while the daily MACD lies below both its signal and zero lines.
• Support: 1169 (S1), 1162 (S2), 1153 (S3).
• Resistance: 1179 (R1), 1185 (R2), 1195 (R3).
DAX futures tumbled on Monday and managed to reach the key support line of 11000 (S1). As long as the index is trading within a short-term downside channel, I would consider the short-term outlook to be negative. A clear move below 11000 (S1) is likely to see scope for larger declines, perhaps towards our next support area of 10800 (S2). Our short-term oscillators reveal downside momentum, but I also see signs that a corrective bounce could be on the cards before the bears take in charge again. The MACD stands below its trigger and well below its zero line, while the RSI looks able to move above 30, hinting the possibility for the aforementioned bounce. As for the longer-term trend, on the 2nd of June, the price violated the uptrend line taken from the low of the 16th of October, while yesterday fell below 11200 (R1), signalling a forthcoming lower low on the daily chart and a possible medium-term trend reversal in my humble opinion.
• Support: 11000 (S1), 10800 (S2), 10700 (S3).
• Resistance: 11200 (R1) 11450 (R2), 11600 (R3).
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IronFX Daily Commentary | 10/06/15
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Dollar drifts higher on encouraging US data The pendulum swung back again yesterday as better-than-expected US data improved the relative attractiveness of USD, while the continued stalemate in Greece is weighing on the EUR. The National Federation of Small Businesses (NFIB) optimism index rose more than expected and the percentage of managers saying they will increase pay held steady. There was also some improvement in key components such as “plans to hire” and “positions not able to fill”. At the same time the Job Opening and Labor Turnover Survey (JOLTS) job openings rose more than expected in April and job openings exceeded the number of people hired for the first time ever, indicating a tightening labor market. Signs that the Fed is on the way to achieving its employment mandate pushed Fed funds rate expectations for end-2017 up 4 bps and 10-year yields up 5.5 bps.
Ten-year Bund yields were up 7 bps though so the spread at the long end moved further in Germany’s favour. Still, USD gained against EUR as talks between Greece and its creditors go nowhere while the clock ticks down to the end-June deadline. Watch what happens later today, when the ECB makes its weekly decision on whether to increase the Emergency Liquidity Assistance (ELA) funds to Greek banks. I expect that they will want to up the pressure on the Greek authorities and therefore won’t increase the ELA funds even though outflows from the Greek banks are reportedly accelerating. That should put further downward pressure on EUR/USD.
USD rose against most other G10 currencies too except NOK, CAD and GBP. A sharp rise in oil prices (WTI up 4.2%!) was the reason why NOK and CAD outperformed. Oil rose on expectations of falling US supply as indicated by the weekly American Petrolelum Institute (API) data, plus comments by the Saudi oil minister that their increase in output was due to a rise in demand, not an attempt to regain market share. We’ll have to see if the official Energy Information Administration (EIA) data out tonight verifies the privately issued API data. That could push oil up even further and support these currencies. Still, I expect US production to rise in June because of changes to the taxation system that kick in this month, making it more attractive to pump oil, plus limits on how long wells can remain drilled but not pumping. There’s a saying in the oil market that “high prices cure high prices” and that’s what we’re likely to see happen as the recovery in oil prices off the lows prevents the kind of wholesale shut-down in US shale oil production that some people were looking for.
Kuroda kicks USD/JPY Bank of Japan Gov. Kuroda said in the Diet that Japan’s real effective exchange rate is already very weak and it’s hard to see it falling more. He noted that the yen has returned to levels it was at before the collaps of Lehman Bros. He’s absolutely right; indeed, on a REER basis, the yen is the weakest it’s been at least since 1994 (the beginning of the BIS data series). That doesn’t mean it can’t weaken further, however. Remember that Japan has the world’s biggest QE program going and is likely to maintain it indefinitely, which over time should weaken the yen further, in my view.
Japan’s machinery orders for April rose 3.8% mom, far better than the market’s estimate of a 2.1% mom decline. Note though that the “market estimate” for this indicator is just a guess as there’s really no way to forecast this extremely volatile indicator. The figure had no impact on the FX market.
Today’s highlights: On Wednesday, we have a relatively light calendar of events. During the European day, French industrial production for April is due to be released.
From Norway, we get the CPI for May. The country’s CPI rate is still close to the central bank’s 2.5% target, even though it declined to 2.0% yoy in April vs 2.3% yoy in March. Given that Norway’s central Bank mentioned the likelihood of a rate cut in June at their last policy meeting, the market is likely to pay more attention at this week’s release. Therefore, despite the solid growth figures that took off some pressure from the Bank to act, another disappointment in the CPI figure could hint at a rate cut and put NOK under increased selling pressure.
In the UK, industrial production for April is coming out. Following the disappointment in the manufacturing and service-sector PMIs, expectations for a broad rebound in the nation’s growth has lessened. The forecast is for the monthly figure to remain unchanged while the annual rate is expected to decelerate. A strong positive surprise in industrial production following the sharp narrowing in trade deficit is needed to keep the scenario for a rebound in Q2 alive.
Later, during the end of the US session RBNZ holds its policy meeting. At their last meeting, the Bank turned dovish and no longer mentioned the conditions for raising rates, but only for dropping them. A similar stance at this meeting is likely to keep NZD under selling pressure. The market’s estimate of the likelihood of a rate cut has been steadily increasing. It now stands at 61%, up from 33% a month ago. Similarly, out of the nine economists whom Bloomberg polled in May and June, five forecast a cut and four forecast no cut. So apparently the market leans towards a cut, but conviction is low. That means there is still room for NZD to decline if they do cut, or looked at the other way, for it to appreciate if they don’t. In other words, expect some volatility from NZD overnight!
As for the speakers, BoE Governor Mark Carney and Chancellor of the Exchequer George Osborne will address the annual Mansion House dinner. Last year, Gov. Carney shocked the markets with his comments that interest rate hikes could come sooner than expected. A year later, and the interest rates are still at 0.5%. Nevertheless, he could shock the markets again this year if he provides any guidance on the timing of the first rate rise.
Currency Titles:
EUR/USD hits support at 1.1210
EUR/JPY oscillates around the 140.00 barrier
NZD/USD in a sideways mode
Gold hits resistance at 1183
WTI is back above 60.00
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EUR/USD slid somewhat on Tuesday, hit support at 1.1210 (S1), and then recovered to trade virtually unchanged. Given that the rate failed to reach the resistance line of 1.1370 (R1), and the mixed signs given by our short-term oscillators, I would switch my stance to neutral for now. The RSI hit resistance at its downside resistance line and turned down, but the MACD has moved above its respective resistance line. A break above 1.1370 (R1) is needed to confirm a forthcoming higher high on the 4-hour chart and perhaps turn the short-term picture to the upside. Such a move could prompt extensions towards our next resistance of 1.1465 (R2). On the downside, a move below 1.1210 (S1) would signal the completion of a minor-term failure swing top and perhaps challenge the next support at 1.1135 (S2). In the bigger picture, I believe that the move that could carry larger bullish implications is a clear close above the psychological zone of 1.1500 (R3).
• Support: 1.1210 (S1), 1.11350 (S2), 1.1045 (S3).
• Resistance: 1.1370 (R1), 1.1465 (R2), 1.1500 (R3).
EUR/JPY has been trading in a sideways mode around the round number of 140.00 since the 3rd of June. It has been oscillating between 139.00 (S1) and 141.00 (R1), so I believe that a clear break above 141.00 (R1) is necessary to trigger the resumption of the prevailing uptrend. Something like that could initially target our next resistance of 141.70 (R2). However, taking into account that there is negative divergence between both our short-term oscillators and the price action, I would stay cautious that a pullback could be looming before the next positive leg. On the daily chart, the break above 131.40 on the 29th of April signaled a possible trend reversal in my view. Therefore I would consider the medium-term trend of EUR/JPY to be positive.
• Support: 139.00 (S1), 137.00 (S2), 135.15 (S3).
• Resistance: 141.00 (R1), 141.70 (R2), 142.20 (R3).
NZD/USD has been trading in a short-term trading range between the support of 0.7030 (S2) and the resistance of 0.7200 (R2). Taking this into account and the fact that there is positive divergence between our short-term oscillators and the price action, I would take the sidelines for now. The prevailing longer-term path of the pair is to the downside, but I believe that a clear close below the round figure of 0.7000 (S3) is the move that could signal its resumption. This is a second reason I prefer to stay flat at the moment. The third reason is that taking a look at our daily oscillators, I see signs of decelerating downside momentum. The 14-day RSI rebounded from its 30 line, while the daily MACD, although negative, has bottomed and looks able to cross above its trigger line.
• Support: 0.7085 (S1), 0.7030 (S2), 0.7000 (S3).
• Resistance: 0.7155 (R1), 0.7200 (R2), 0.7275 (R3).
Gold traded higher on Tuesday, but hit resistance at 1183 (R2) and slid back down to trade once again virtually unchanged. Since the metal remains within the black downside channel, I still believe that the short-term picture is negative. I also believe that the next move is likely to be down as well, perhaps for another test at the 1169 (S1) territory. Our short-term oscillators support the notion. The RSI found resistance at its downside resistance line and turned back below 50, while the MACD, already negative, shows signs of topping and that it could fall below its trigger line soon. On the daily chart, the move below 1169 (S1) on the 5th of June gives a first sign that the overall outlook has probably turned negative. This is also supported by our daily oscillators. The 14-day RSI stands below its 50 line, while the daily MACD lies below both its signal and zero lines.
• Support: 1169 (S1), 1162 (S2), 1153 (S3).
• Resistance: 1179 (R1), 1183 (R2), 1195 (R3).
WTI soared on Tuesday, moving again back above the round figure of 60.00. Nevertheless, the bulls found resistance a few cents above the 61.00 (R1) barrier. The short-term picture stays positive in my view, thus a decisive move above 61.00 (R1) is likely to open the way for the peak of the 2nd of June at 61.55 (R2). Taking a look at our hourly momentum studies though, I would be careful of a possible pullback before the bulls take the reins again. The 14-hour RSI has topped within its overbought territory and could fall below 70 soon, while the hourly MACD shows signs that it could turn down and fall below its trigger line. As for the broader trend, 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 declines that stay limited above 55.00 as a corrective phase for now.
• Support: 60.40 (S1), 59.85 (S2), 59.55 (S3).
• Resistance: 61.00 (R1) 61.55 (R2), 62.50 (R3).
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IronFX Daily Commentary | 11/06/15
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RBNZ cuts rates, declares easing cycle The Reserve Bank of New Zealand (RBNZ) not only cut rates by 25 bps, as the market largely expected (61% probability), but also announced an easing bias. The last paragraph of the statement said, “We expect further easing may be appropriate. This will depend on the emerging data.” This was a more definite statement of intention than in the 30 April statement, when it said the Bank “…is not currently considering any increase in interest rates…It 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.” One of the key points about New Zealand is that it remains one of the few G10 countries that can still lower interest rates – at 3.25%, the cash rate is still far above the next highest country, Australia (2.0%) -- so there is plenty of room for the market to revise down its estimates. And just in case anyone in the FX market didn’t get the message, the Bank also said the NZD “remains overvalued. A further significant downward adjustment is justified.” It’s no surprise then that NZD was the worst-performing G10 currency overnight. I would expect it to remain weak for some time until the market has fully digested the likelihood of further easing in New Zealand.
Australian unemployment AUD on the other hand was the best-performing G10 currency overnight as the unemployment rate unexpectedly declined and the number of people in work rose sharply. The figure came as a big surprise as other indicators of Australia’s economy are not particularly strong. The market is not expecting any more interest rate cuts this year despite what Gov. Stevens says. That’s likely to support AUD going forward, at least until some new statistics come out to change peoples’ views.
US oil inventories plunge even as output rises further Oil continued its rally after the US Energy Information Agency (EIA) data showed a much bigger-than-expected decline in inventories. However, the data did not show any decline in output – on the contrary, US oil output hit what looks to me like a record high (but it’s hard to say because of inconsistent data sources). Inventories at Cushing, Oklahoma, which many people (like me) thought might be full by now, fell for the seventh consecutive week. It seems to me that the market is focusing too much on the inventory situation and not enough on the production. Inventories are indeed falling but production isn’t. In order for prices to come down, we should see the increased OPEC production displacing US production. We haven’t yet. I still believe that oil prices are likely to fall and that CAD and NOK remain vulnerable to such a change. As they say in the oil business, high prices cure high prices.
Not what we need right now Just in case there wasn’t enough to worry about with Greece, the Greek courts ruled that pension cuts that were party of the country’s second bailout in 2012 are unconstitutional. That will only stiffen the government’s resolve to oppose further concessions. Meanwhile, the German magazine Bild reportedly that Germany’s government has rejected a third aid package for Greece. Meanwhile, some observers are arguing that even if the two sides could agree – which seems increasingly impossible – there’s not enough time now for any agreement to be passed through the German and Greek parliaments before the end-June deadline. The Greek problem hasn’t been too much of a factor in financial markets as everyone largely believes that they will find a last-minute compromise. But as that last minute approaches, I would expect the market to start pricing in a risk premium, which would mean a lower EUR/USD.
Chinese data shows… China released its retail sales, industrial production and fixed assets investment for April…
Today’s highlights: During the European day, we get the French CPI for May.
Sweden’s CPI and CPIF for May are also due to be released. Following the dip of the CPI back to deflation in April, another sign of weakness in prices could prompt the Bank to ease further its monetary policy. The Bank held out the possibility to act even between the ordinary monetary policy meetings, should the need arise. This is likely to keep SEK under pressure.
In the US, retail sales for May are expected to accelerate. April’s retail sales figures were disappointing and consumer confidence index declined, frustrating markets that have been looking for signs that the soft Q1 patch is coming to an end. A positive surprise could ease market concerns and strengthen USD against its peers. Initial jobless claims for the week ended June 6 are also coming out.
Currency Titles:
EUR/USD rejected from slightly above 1.1370
USD/JPY rebounds from near 122.55
NZD/USD collapses after RBNZ cut rates
Gold breaks above the upper bound of a downside channel
WTI hits resistance at 61.80
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Currencies Text:
EUR/USD traded somewhat higher on Wednesday, hit resistance slightly above 1.1370 (R1) and then retreated. Given that the rate failed to overcome the resistance barrier of 1.1370 (R1), and that there is negative divergence between both our short-term oscillators and the price action, I would hold my neutral stance. A break above 1.1370 (R1) is needed to confirm a forthcoming higher high on the 4-hour chart and perhaps turn the short-term picture to the upside. Such a move could prompt extensions towards our next resistance of 1.1465 (R2). On the downside, a move below 1.1210 (S1), would signal the completion of a minor-term double top formation and perhaps pave the way for our next support at 1.1135 (R2). In the bigger picture, I believe that the move that could carry larger bullish implications is a clear close above the psychological zone of 1.1500 (R3).
• Support: 1.1210 (S1), 1.1135 (S2), 1.1045 (S3).
• Resistance: 1.1370 (R1), 1.1465 (R2), 1.1500 (R3).
USD/JPY rebounded from near 122.55 (S1) yesterday following the plunge during the early European morning. Today the rate is trading slightly below the 123.35 (R1) resistance line, where an upside break is likely to challenge the next obstacle at 123.80 (R2). Our short-term oscillators support the continuation of the rebound. The RSI exited its oversold conditions, while the MACD has bottomed and could move above its trigger line in the near future. Nevertheless, although we may experience the continuation of the rebound, the likelihood of a lower peak is high. As a result I would consider the short-term outlook to be cautiously negative. A move below the 122.55 (S1) line is likely to challenge the key zone of 122.00 (S2) as a support this time. In the bigger picture, the break above the 122.00 zone on the 26th of May triggered the continuation of the long-term upside path, thus I would see the short-term downtrend as a retracement of the larger uptrend.
• Support: 122.55 (S1), 122.00 (S2), 121.45 (S3).
• Resistance: 123.35 (R1), 123.80 (R2), 124.60 (R3).
NZD/USD collapsed following the Reserve Bank of New Zealand decision to cut its benchmark interest rate by 25bps. The pair was trading near the 0.7200barrier ahead of the event and as soon as the decision was published, it collapsed to trade a few pips below the 0.7030 (R1) hurdle. The prevailing longer-term path of the pair is to the downside, but I believe that a clear close below the round figure of 0.7000 (S1) is the move that could signal its resumption. Something like that is likely to initially challenge 0.6950 (S2) the low of the 25th of August 2010. Our daily oscillators have both turned down again supporting the case that we are likely to see NZD/USD trading below 0.7000 (S1) soon. The 14-day RSI slid after hitting resistance below its 50 line, while the MACD, already negative, crossed again below its signal line.
• Support: 0.7000 (S1), 0.6950 (S2), 0.6820 (S3).
• Resistance: 0.7030 (R1), 0.7085 (R2), 0.7155 (R3).
Gold raced higher yesterday, breaking above the resistance (now turned into support) of 1183 (S1) and the upper bound of the downside channel that had been containing the price action since the 18th of May. However, the metal fell short of reaching our 1195 (R1) hurdle, and therefore I believe that a move above that line is needed to carry more bullish implications. Such a break is likely to pull the trigger for our next resistance at 1204 (R2). Yesterday’s rally confirmed the positive divergence between both the short-term oscillators and the price action. What is more, both these technical studies emerged above their respective downside resistance lines. On the daily chart, the move below 1169 (S1) on the 5th of June gives a first sign that the overall outlook has probably turned negative. As a result, I would treat any further short-term advances as a corrective phase.
• Support: 1183 (S1), 1175 (S2), 1169 (S3).
• Resistance: 1195 (R1), 1204 (R2), 1215 (R3).
WTI continued trading higher on Wednesday, but after hitting resistance at 61.80 (R1), it pulled back to find support at 60.50 (S2). Subsequently, WTI rebounded to trade marginally above 61.00 (S1). The short-term picture stays positive in my view, thus I would expect another positive leg and another test at 61.80 (R1) in the near future. A clear move through that barrier is likely to open the way for the next resistance at 62.50 (R2). As for the broader trend, 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. Our daily oscillators support further advances as well. The 14-day RSI rebounded from near its 50 line, while the daily MACD, already positive, has bottomed and poked its nose above its trigger line.
• Support: 61.00 (S1), 60.50 (S2), 59.85 (S3).
• Resistance: 61.80 (R1) 62.50 (R2), 63.50 (R3) .
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IronFX Daily Commentary | 12/06/15
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USD rallies for a few minutes on good US retail sales The dollar rallied yesterday in anticipation of a good US retail sales figure for May. In the event the figure did beat even the optimistic forecasts and the dollar moved up instantly when the number came out. However there was a “buy the rumor, sell the fact” response and the dollar spike was quickly met by selling. For example, within 10 minutes of the number EUR/USD was higher than before it came out. The rally didn’t even last that long in USD/JPY – only 2 minutes or so. Nonetheless the US currency managed to hold onto much of its overall gains and it is trading higher this morning against most G10 currencies compared to where it was this time yesterday.
The market is now looking ahead to next week’s US FOMC meeting. The market does not expect them to hike at the meeting; rather, the question is whether they will send any strong signals about a possible hike in September. The March “dot plot” showed the weighted average of the FOMC members’ estimates for Fed funds at the end of this year was 0.77%, which implies at least two rate hikes. There are only four more meetings this year after next week’s (July, September, October and December) and only two with press conferences (September and December). Is their earlier vision still possible? We await the revision of the “dot plot” next week to see if the FOMC members have changed their view or whether the market has to change its view ASAP
Greece problem just gets worse and worse
The Greek situation is really going down to the wire. The IMF’s technical team left Brussels and went home yesterday because they said the negotiations were now taking place on a political level. IMF spokesman Gerry Rice said "There are major differences between us in most key areas, and there has been no progress in narrowing these differences, and we are well away from an agreement." He said that the main obstacles remain pension reform, tax policy and financing – a familiar list. Apparently there is a deal all ready for Greek PM Tsipras to sign, but that doesn’t seem likely. And even if he does, can he get it through the Greek parliament? Meanwhile the German mass daily Bild reports growing dissatisfaction with Greece among German politicians, raising the possibility that Germany might refuse to fund a third bailout program for Greece even if the Athens government accedes to all the reforms that the creditors want. At that point it would be “game over” for Greece. I believe that this possibility is not in the market and that the euro needs to have a significantly higher risk premium – i.e., needs to be significantly lower – to reflect the growing likelihood of this worst-case scenario. Greek stocks were up 8% yesterday (vs +0.6% for the DAX) on optimism that a deal was near – let’s see how they go today. EUR/USD is likely to follow Athens’ lead.
Oil eases back
Oil lost some of Wednesday’s gains after the International Energy Agency (IEA) said OPEC production in May was the highest it’s been since 2012, with Saudi Arabia, Iraq and the UAE all pumping record amounts of crude. The US is also producing at a record level. While the drop in US inventories in the latest week sent prices higher on Wednesday, inventories are still some 90mn barrels above the five-year average for this time of year, according to the Energy Information Administration. I remain bearish on oil and therefore on CAD and NOK.
Today’s highlights: The calendar is very light today. The only indicator we get from Europe is the region’s industrial production for April. Even though this indicator is usually not major market mover, it should add to the recent positive data and show that Eurozone is gathering momentum again.
In the US, we get the PPI for May. The forecast of a rebound from the previous month, could prove USD-positive somewhat. The preliminary University of Michigan consumer sentiment index for June is expected to tick up a bit from the previous month. The surveys of 1-year and 5-to-10 year inflation expectation outlook are also coming out.
We have only one speaker on Friday’s agenda: ECB Governing Council member Carlos Costa. The Bank of England also publishes a speech made by Ian McCafferty on Thursday. The market could look at this speech by someone who previously voted for a rate hike for hints if he is likely to resume his hawkish stance anytime soon.
Currency Titles:
EUR/USD pulls back
GBP/USD rebounds from near 1.5435
EUR/JPY still in a trendless mode
Gold rebounds from slightly above 1175
DAX futures hit resistance at 11450
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EUR/USD traded lower on Thursday and hit support below the 1.1210 (S1) barrier. Subsequently, the rate rebounded somewhat. Having in mind that the rate failed to overcome the resistance barrier of 1.1380 (R1) on Wednesday, and that there is still negative divergence between both our short-term oscillators and the price action, I maintain my neutral stance. A break above 1.1380 (R1) is needed to confirm a forthcoming higher high on the 4-hour chart and perhaps turn the short-term picture to the upside. Such a move could prompt extensions towards our next resistance of 1.1465 (R2). On the downside, another attempt below 1.1210 (S1) could signal the completion of a minor-term double top formation and perhaps pave the way for our next support at 1.1135 (S2). In the bigger picture, I believe that the move that could carry larger bullish implications is a clear close above the psychological zone of 1.1500 (R3).
• Support: 1.1210 (S1), 1.1135 (S2), 1.1045 (S3)
• Resistance: 1.1380 (R1), 1.1465 (R2), 1.1500 (R3)
GBP/USD hit support near the 1.5435 (S1) barrier and then rebounded, but the advance was limited below the 1.5550 (R1) resistance line. The break above the upper line of the downside channel on the 9th of June shifted the short-term picture to the upside in my view. However, a break above 1.5550 (R1) is needed to confirm a forthcoming higher high and reinforce that near-term uptrend. Something like that is likely to pull the trigger for the next resistance at 1.5635 (R2). Taking a look at our oscillators though, I would be careful that a pullback could be looming. The RSI shows signs that it could top near its 70 line, while the MACD looks able to fall below its trigger line soon. Switching to the daily chart, I see that the rate rebounded from the 50% retracement level of the 14th of April - 15th of May up-leg, and is now back above the 80-day exponential moving average. This supports the idea that the picture has probably turned positive again.
• Support: 1.5435 (S1), 1.5360 (S2), 1.5275 (S3)
• Resistance: 1.5550 (R1), 1.5635 (R2), 1.5700 (R3)
EUR/JPY traded in a quiet mode yesterday, staying slightly above the support barrier of 138.50 (S1). In my opinion, the short-term picture remains neutral as the rate has been oscillating between that line and the resistance of 141.00 since the 3rd of June. I believe that a rebound near 138.50 (S1) is likely to challenge again the 141.00 (R1) barrier. However, a break above the latter line is needed to signal the continuation of the prevailing uptrend. On the daily chart, the break above 131.40 on the 29th of April signaled a possible trend reversal in my view. Therefore I would consider the medium-term trend of EUR/JPY to be somewhat positive.
• Support: 138.50 (S1), 137.00 (S2), 135.15 (S3)
• Resistance: 141.00 (R1), 141.70 (R2), 142.20 (R3)
Gold traded lower yesterday, but the decline was halted marginally above our support barrier of 1175 (S2). Then the precious metal rebounded and is now trading fractionally above the 1183 (S1) line. Bearing in mind that the rebound from near 1175 (S2) printed a higher low and that the price is trading within a near-term upside channel, I would see a cautiously positive near-term outlook and I would expect buyers to drive the battle towards the 1195 (R1) resistance territory. The RSI is back above its 50 line, while the MACD, already positive, looks able to rebound from near its trigger line. These signs increase the odds that the rebound could extend higher. On the daily chart, the move below 1169 (S1) on the 5th of June gives a first sign that the overall outlook has probably turned negative. As a result, I would treat any further short-term advances as a corrective phase.
• Support: 1183 (S1), 1175 (S2), 1169 (S3)
• Resistance: 1195 (R1), 1204 (R2), 1215 (R3)
DAX futures surged on the 9th of June after hitting support at 10870 (S3), which happens to be the 38.2% retracement level of the 16th of October – 10th of April advance. However, yesterday the index hit resistance at 11450 (R1) and then retreated. I believe that a break below 11240 (S1) is needed to signal the continuation of the retreat, and perhaps target our next support at 11070 (S2). On the other hand, a break above 11450 (R1) is likely to extend the rebound from 10870 (S3) and perhaps challenge the 11600 (R2) zone. As for the longer-term trend, on the 2nd of June, the price violated the uptrend line taken from the low of the 16th of October and is now trading within a downside channel. This keeps the medium term picture negative. However, a move above the 11900 area will signal that the fall started on the 10th of April is just a 38.2% retracement and that the prevailing trend is back in force.
• Support: 11240 (S1), 11070 (S2), 10870 (S3)
• Resistance: 11450 (R1) 11600 (R2), 11800 (R3)
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IronFX Daily Commentary | 15/06/15
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Greek debt talks break downTalks between Greece and its EU creditors collapsed on Sunday, with lenders saying that the gap between the two parties may be too wide to bridge. With no deal being reached on a technical level, it is up to politicians to take difficult decisions. The focus now turns to a June 18 Eurogroup meeting and the Eurozone leaders’ summit on June 25. A final agreement on Thursday’s Eurogroup meeting seems unlikely, and therefore I would expect tough decisions to be made by the bloc’s leaders. The EUR lurched lower on Asian opening session, as the deadline to reach a bailout deal fast approaches. We expect the common currency to remain under selling pressure. This could also weigh on DAX and Eurostoxx 50 and could push them a bit lower, as the uncertainty over a solution on Greek debt is building up.
Today’s highlights: Eurozone’s trade surplus for April is due to be released.
From Sweden, we get the official and PES unemployment rate for May. Following the unexpected rise of the CPI on Thursday, this is likely to take same pressure off the Riksbank to cut rates deeper into the negative territory. A decline in the unemployment rate could add to these
In the US, industrial production for May is expected to rebound from the month before, while the Empire State manufacturing index is expected to show that business conditions for NY manufacturers have improved in June. A rebound in industrial production could prove USD-positive.
We have several ECB speakers on Monday’s agenda: President Draghi, Governing Council member Ewald Nowotny, Governing Council member Jens Weidmann and Executive Board member Peter Praet. All speakers could some volatility in the markets.
As for the rest of the week, the highlight will be the Federal Open Market Committee (FOMC) meeting on Wednesday. The last three statements from Fed officials were all unanimous, but that could have been only the calm before the storm. The policy statement to be released on Wednesday could bring an end to this quiet period with a few dissenters voting for a rate hike. In such a case, the dollar would be likely to strengthen and to regain its glamour. On the other hand, no dissenters would probably cause the greenback to weaken against its peers.
Even though we had some disappointing US job data and soft retail sales in recent months, the former seem to have improved recently and the latter rose on Thursday with April’s figure being revised up moderately. These add to evidence that the US growth is likely to rebound in Q2.
The Committee will also give new forecasts for the economy, inflation and interest rates, including the famous “dot plot” of Fed funds rate expectations. Fed Chair Yellen holds a press conference following the decision. The market will be looking for hints if the September meeting, which is also accompanied by a press conference could be the month that they start normalization. Already FOMC days tend to be more volatile than the average day, and FOMC days with a press conference tend to be more volatile than FOMC days without one. Therefore, get ready for some big moves.
On Tuesday, during the Asian day, the Reserve Bank of Australia releases the minutes of its June policy meeting. At this meeting, the Bank kept its cash rate unchanged as was expected and the statement accompanying the decision was neutral, with no clear bias with regards to the direction of the next move in rates. The minutes will probably have a similar tone with the statement and to the recent speech of RBA Governor Stevens who showed readiness to adjust policy if needed.
As for the indicators, in the UK, we get the CPI for May. In April, the nation slipped into deflation as the headline CPI rate fell to -0.1% yoy, in line with BoE expectations of a negative rate. What is more, the core inflation rate slowed, printing the lowest core rate since 2001. GBP/USD tumbled on the news as the decline in the core rate suggests low inflation is not merely a matter of low oil prices and prices may not rise even when the effects of low oil prices fade from the data. Anything that increases the risk that the BoE is likely to miss its inflation target pushes back expectations of a rate hike and leaves GBP vulnerable, in my view.
The German ZEW survey for June is coming out. The survey for May added to the weak data from the country with both indices falling below market expectations. A strong survey is needed to confirm that Germany, Europe’s largest economy, is still gaining momentum.
In the US, housing starts and building permits for May are to be released. Housing starts are forecast to decline a bit but to remain above 1mn, while building permits, the more forward-looking of the two indicators, are forecast to moderate somewhat. Nevertheless, the overall strength in the housing sector supports the view that growth in Q2 could rebound somewhat and this could strengthen the greenback a bit.
On Wednesday, besides the FOMC meeting, the Bank of England releases the minutes of its June meeting. It will be interesting to see if there were any discussion of how the dip into deflation has affected wage negotiations and if any of the MPC members who previously voted for a rate hike are likely to resume their hawkish stance any time soon given the “range of views” in the previous statement, or if the decision was again “finely balanced”. The MPC members could also repeat their well-known phrase that “it is more likely than not that the Bank rate would rise over the three-year forecast period”.
As for the indicators, the UK unemployment rate for April is coming out. Another decline in the rate and acceleration in the growth of average weekly earnings, along with an optimistic statement could strengthen GBP somewhat.
On Thursday, we get the US CPI for May. Coming a day after the FOMC meeting and the new projections, a strong surprise is needed for investors to alter their view on the inflation outlook.
From New Zealand, GDP for Q1 is coming out. Following the recent rate cut by the RBNZ, the market reaction on GDP figures on Thursday is likely to be limited.
On Friday, during the Asian day, the Bank of Japan ends its two-day policy meeting. Market expectations are for no change in policy at this meeting. The focus will most likely be on Governor Haruhiko Kuroda press conference afterwards, especially after his recent comments in the Diet that Japan’s real effective exchange rate is already very weak and it’s hard to see it falling more. All in all, with the Bank being unable to reach its inflation target and with a JPY reluctant to weaken further according to Gov. Kuroda, the only way they could weaken their currency further is by increasing their massive QE program. Even though, we 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.
From Canada, we get the CPI for May.
Currency Titles:
EUR/USD gaps down
EUR/GBP near the support line of 0.7200
EUR/JPY hits support at 138.00
Gold trades virtually unchanged
WTI falls back below 60.00
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EUR/USDgapped down on Monday, after it hit resistance at 1.1300 (R1) on Friday. The rate failed to reach the key resistance of 1.1380 (R2) and formed a lower high. Bearing this in mind and that there is still negative divergence between both our short-term oscillators and the price action, I would see a cautiously negative picture. A break below the 1.1145 (S1) line will confirm a forthcoming lower low and perhaps pull the trigger for our next support line of 1.1045 (S2), defined by the low of the 5th of June. The RSI is back below its 50 line, while the MACD, already below its trigger line, has just turned negative. These momentum signs amplify the case that further declines could be on the cards. As far as the bigger picture is concerned, I would adopt a neutral stance, since there is no clear trending structure on the daily chart.
• Support: 1.1145 (S1), 1.1045 (S2), 1.1000 (S3)
• Resistance: 1.1300 (R1), 1.1380 (R2), 1.1465 (R3)
EUR/GBP opened the day with a gap down as well, but the decline stayed limited near the 0.7200 (S1) support barrier. Last Thursday, the pair fell below the support (turned into resistance) barrier of 0.7265 (R1) and completed a double top formation on the 4-hour chart. This has shifted the short-term outlook to the downside in my view and therefore, I would expect a decisive move below 0.7200 (S1) to pave the way for our next support area of 0.7145 (S2). Our short-term oscillators detect downside speed and support the aforementioned scenario. The RSI, already below 50, turned down again, while the MACD stands below both its zero and trigger lines and points down. On the daily chart, the pair has been trading in a non-trending mode since mid-March. Therefore, although we may see some near-term declines in the short run, I would consider the overall outlook to be neutral.
• Support: 0.7200 (S1), 0.7145 (S2), 0.7115 (S3)
• Resistance: 0.7265 (R1) 0.7315 (R2), 0.7385 (R3)
EUR/JPY gapped down on Monday, after it hit resistance at 139.30 (R1) on Friday. However, the rate found support at 138.00 (S1) and rebounded somewhat. A clear and decisive move below 138.00 (S1) would confirm a forthcoming lower low on the 4-hour chart and perhaps pave the way for the next support at 137.00 (S2). Our short-term oscillators detect negative momentum and corroborate that view. The RSI hit resistance at its 50 line and turned down, while the MACD stands below both its zero and signal lines, pointing south as well. On the daily chart, the break above 131.40 on the 29th of April signaled a possible trend reversal in my view. As a result, I would consider the medium-term trend of EUR/JPY to be positive, and I would treat any near-term declines as a corrective phase of the longer-term uptrend.
• Support: 138.00 (S1), 137.00 (S2), 135.15 (S3)
• Resistance: 139.30 (R1), 141.00 (R2), 141.70 (R3)
Gold traded in a consolidative manner on Friday trading between the support barrier of 1175 (S1) and the resistance of 1186 (R1). The precious metal is still trading above the short-term uptrend line taken from the low of the 5th of June, but below the downtrend line drawn from the peak of the 22nd of May. Having these technical signs in mind, I would take the sidelines for now as far as the short-term picture is concerned. My stance is also supported by our oscillators. Both the RSI and the MACD lie near their equilibrium lines and point sideways. On the daily chart, the move below 1169 (S2) on the 5th of June gives a first sign that the overall outlook has probably turned negative. As a result, I would treat any further short-term advances as a corrective phase.
• Support: 1175 (S1), 1169 (S2), 1162 (S3)
• Resistance: 1186 (R1), 1195 (R2), 1204 (R3)
WTI traded lower on Friday and is now trading back below the 60.00 figure. The price structure on the 1-hour chart suggests a short-term downtrend, and therefore I would expect a clear break below the 59.50 (S1) hurdle to open the way for the next support, at 59.00 (S2). As for the broader trend, 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, WTI has been trading in a sideways mode since the 6th of May, and this is supported by our daily oscillators as well. Both the 14-day RSI and the daily MACD lie near their equilibrium lines and point sideways. I also see negative divergence between the oscillators and the price action, something that leaves the door open for further short-term declines. Nevertheless, I would treat any possible further declines as a corrective phase of the overall upside path.
• Support: 59.50 (S1), 59.00 (S2), 58.55 (S3)
• Resistance: 59.85 (R1) 60.35 (R2), 60.95 (R3)
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IronFX Daily Commentary | 17/06/15
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FOMC meeting: What to expectThe last three statements from Fed officials were all unanimous, but that could have been only the calm before the storm. The policy statement to be released today could bring an end to this quiet period with a few dissenters voting for a rate hike. How many, is key to the market interpretation of the likelihood of a September rate hike scenario. In such a case, the dollar could strengthen and regain its glamour. Another key point to watch in the statement will be the FOMC view on how much of the Q1 weakness is temporary. Even though we had some disappointing US job data and soft retail sales in the last few months, the former seem to have improved recently and the latter rose last Thursday with April’s figure being revised up moderately. These add to evidence that the US growth is likely to rebound in Q2 and that the weakness in Q1 was mainly due to transitory factors.
The Committee will also give new forecasts for the economy, inflation and interest rates, including the famous “dot plot” of Fed funds rate expectations. We believe that the recent mixed data are likely to increase the uncertainty on the economic outlook and therefore, we could see few members lowering their expected Fed funds rate path and GDP projections. In response, a lower rate path could suggest only one rate increase this year from two suggested in March. Added to that a lower long-term growth, this could put some downward pressure on USD.
Fed Chair Yellen holds a press conference following the decision. The market will be looking for hints if the September meeting, which is also accompanied by a press conference could be the month that they start normalization. A positive tone and increased confidence are likely to be USD-supportive. Already FOMC days tend to be more volatile than the average day, and FOMC days with a press conference tend to be more volatile than FOMC days without one. Therefore, get ready for some big moves.
Today’s highlights: Besides the FOMC meeting, the Bank of England releases the minutes of its June meeting. It will be interesting to see if there were any discussion of how the dip into deflation has affected wage negotiations and if any of the MPC members who previously voted for a rate hike are likely to resume their hawkish stance any time soon given the “range of views” in the previous statement, or if the decision was again “finely balanced”. The MPC members could also repeat their well-known phrase that “it is more likely than not that the Bank rate would rise over the three-year forecast period”.
As for the indicators, the UK unemployment rate for April is coming out. Another decline in the rate and acceleration in the growth of average weekly earnings, along with an optimistic tone from the minutes could strengthen GBP somewhat.
Eurozone’s final CPI for May is also coming out and as usual, the final figure is forecast to confirm the preliminary reading. Thus the market reaction could be limited.
The ECB holds a non-monetary policy meeting to decide whether to increase the limit of ELA to Greek banks and raise the haircut on Greek bonds used as collateral. This is an important meeting as we head towards Thursday’s Eurogroup meeting and a change in the Bank’s stance may imply that the ultimate funding cut-off could be as soon as next week. This will add further pressure on Greek authorities to reach an agreement with its creditors.
Currency Titles:
EUR/USD fails to stay above 1.1300
NZD/USD hits resistance at 0.7000 and slides
EUR/JPY rebounds from slightly above 138.00
Gold slides after finding resistance near 1190
WTI gyrates around 60.00
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• EUR/USDtraded higher during the European morning Tuesday, but failed to sustain above the 1.1300 (R1) line and retreated back below it. I maintain my neutral stance and I would wait for another attempt to break above 1.1300 (R1) before I get confident on the upside. Something like that could open the way for another test at the key hurdle of 1.1380 (R2). On the downside, a break below 1.1145 (S2) is the move that would shift the short-term bias negative and perhaps set the stage for downside extensions towards 1.1045 (S3). Our oscillators support my choice to take the sidelines as they both lie near their equilibrium lines and point north. As far as the bigger picture is concerned, I would take the sidelines as well, since there is no clear trending structure on the daily chart.
• Support: 1.1185 (S1), 1.1145 (S2), 1.1045 (S3)
• Resistance: 1.1300 (R1), 1.1380 (R2), 1.1465 (R3)
• NZD/USD traded somewhat lower after it found resistance near the psychological figure of 0.7000 (R1). The intraday bias is to the downside in my view and therefore I would expect another test at 0.6940 (S1), defined by the low of the 12th of June. A clear close below here is likely to confirm a forthcoming lower low and perhaps set the stage for extensions towards our next support at 0.6830 (S2), marked by the low of the 6th of July 2010. Our near-term momentum studies support further declines. The RSI, already below 50, has turned down again, while the MACD, already negative, shows signs of topping. As for the broader trend, the move below 0.7000 (R1) confirmed a lower low on the daily chart and signaled the continuation of the prevailing longer-term downtrend, in my view.
• Support: 0.6940 (S1), 0.6830 (S2), 0.6700 (S3)
• Resistance: 0.7000 (R1), 0.7030 (R2), 0.7085 (R3)
• EUR/JPY traded lower yesterday but hit support fractionally above the 138.00 (S1) line and rebounded somewhat. If the rebound continues and the bulls managed to drive the battle above 139.60 (R1), I would expect them to pull the trigger for another test at 141.00 (R2). On the downside, a clear and decisive move below 138.00 (S1) is needed to confirm a forthcoming lower low on the 4-hour chart and perhaps pave the way for the next support at 137.00 (S2). On the daily chart, the break above 131.40 on the 29th of April signaled a possible trend reversal in my view. As a result, I would consider the medium-term trend of EUR/JPY to be positive, and I would treat any near-term declines as a corrective phase of the longer-term uptrend.
• Support: 138.00 (S1), 137.00 (S2), 135.15 (S3)
• Resistance: 139.60 (R1), 141.00 (R2), 141.70 (R3)
• Gold tumbled on Tuesday, found support at 1176 (S1), and subsequently rebounded to hit resistance at 1183 (R1). The precious metal still trades below the downtrend line taken from the peak of the 22nd of May, but also above the uptrend line drawn from the low of the 5th of June. As a result, I would consider the short-term picture of Gold to be neutral for now. Our short-term momentum studies support the case as they both gyrate around their equilibrium lines. On the daily chart, the move below 1169 (S3) on the 5th of June gives a first sign that the overall outlook has probably turned negative. As a result, I would treat any possible short-term advances as a corrective phase.
• Support: 1176 (S1), 1173 (S2), 1169 (S3)
• Resistance: 1183 (R1), 1190 (R2), 1196 (R3)
•WTI moved in a consolidative manner yesterday, staying near the round number of 60.00. The price is trading in a sideways mode between the support of 59.50 (S1) and the resistance of 60.35 (R1). Therefore, I would consider the intraday bias to be neutral for now. Our technical studies support the trendless short-term picture as well. Both the moving averages point sideways, while both our oscillators lie near their neutral levels, also pointing east. As for the broader trend, 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, WTI has been trading in a sideways mode since the 6th of May, and this is supported by our daily oscillators as well. Both the 14-day RSI and the daily MACD lie near their equilibrium lines and point sideways. I also see negative divergence between the oscillators and the price action, something that leaves the door open for further short-term declines. Nevertheless, I would treat any possible further declines as a corrective phase of the overall upside path.
•Support: 59.50 (S1), 59.00 (S2), 58.55 (S3)
•Resistance: 60.35 (R1) 60.95 (R2), 61.50 (R3)
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IronFX Daily Commentary | 18/06/15
Language English
Fed officials are still on track for a rate hike Fed Chair Yellen gave no hint on the timing of the first rate hike and disappointed those who were expecting a signal for a hike as early as in September. Yellen also repeated that the path of rate increases to follow is more important than the timing of the lift-off and that the timing will be data depended. She also said that the increases are likely to be gradual.
The most important result however was the distribution of the “dot plot”. Fed officials lowered their interest rate forecasts, which turned out to be more dovish than expected. The Committee seems to be fairly split between one and two hikes. This is definitely less clear than the previous FOMC forecast, where the Committee was projecting two rate hikes this year. As for the economic outlook, the economic growth projections were lowered with the range now being from 1.8% to 2% compared to 2.3% to 2.7% in the last round of forecasts in March. The unemployment rate by year-end was now expected to range from 5.2% to 5.3% compared with 5% to 5.2% previously, while consumer prices were unchanged from the range projected in March. We believe that despite of the lowered interest rates forecasts and the downward revision of the economic outlook, September remains the most likely lift-off month. Though the likelihood may have declined a bit. If the economic outlook continues to improve in the next months and the momentum picks up, the first rate hike could occur in September and the USD could regain its strength.
Kiwi plunged after the country’s GDP growth slowed in Q1, missing estimates of a moderate decline in the pace of expansion. This added to the recent soft data and increased the likelihood for another rate cut by RBNZ this year. NZD is expected to remain under selling pressure, especially if data going forward continue to disappoint.
Today’s highlights: The Swiss National Bank (SNB) and Norway’s central bank hold their policy meeting. The forecast is for the SNB to remain on hold. Since the last meeting in March, conditions in Switzerland have deteriorated with CPI dipping further into deflation and 1Q GDP contracting. Nevertheless, unless the SNB believes that the stronger CHF could have a negative impact on the economy, we would expect the bank’s stance to remain unchanged.
In Norway, the Norges Bank meets to decide on its interest rates. The market expects the Bank to deliver a 25bp rate cut. Although Norway’s CPI is still close to the Bank’s 2.5% target, negative developments since the last meeting, including much worse-than-expected industrial production and manufacturing PMI, and a weak Q1 GDP growth rate could be the reasoning behind such a move. Despite the stabilization in oil prices, the drop in oil investments is still affecting the oil-related sectors. Cost cuts and layoffs from the sector could put upward pressure in Norway’s unemployment rate, although the rate stands at the low level of 2.7%. Therefore, the Bank’s decision could bring NOK under increasing selling pressure.
As for the indicators, we get the UK retail sales and the US CPI, both for May. UK retail sales are expected to fall a bit, a turnaround from the previous month. This could take weigh a bit on GBP and take some of its recent gains. As for the US CPI, coming a day after the FOMC meeting and the new projections, a strong surprise is needed for investors to alter their view on the inflation outlook. US initial jobless claims are also coming out.
On Thursday, there is a Eurogroup meeting as well. Greek Finance Minister said recently that Greece is not planning to present new reform proposals at this meeting, therefore, this meeting could also be a short one. Meanwhile, deposit outflows from Greek banks are accelerating, as implied by the large increase in ELA financing to Greek banks by the ECB last week. Failure to reach an agreement would likely lead to capital controls and a meaningful impact on peripheral bonds and the common currency. This could also cause an emergency EU leaders summit over the weekend to find a solution for the Greek crisis.
As for the speakers, SNB President Jordan and Norges Bank Governor Olsen hold press conferences following the two Banks’ rate decisions.
Currency Titles:
EUR/USD surges after Yellen’s remarks
GBP/USD races higher after strong UK employment report
USD/JPY falls below the short-term uptrend line
Gold hits support near the uptrend line and shoots up
DAX futures decline after hitting 11110
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Currencies Text:
•EUR/USD surged on Wednesday after Fed Chair Yellen disappointed those who had hoped for a clear sign on when the Committee will raise interest rates. The pair emerged above the resistance (now turned into support) hurdle of 1.1300 (S1) and now seems ready to challenge the key obstacle of 1.1380 (R1). A clear and decisive move above that line is likely to extend the bullish wave and perhaps set the stage for extensions towards our next resistance of 1.1465 (R2), marked by the peak of the 15th of May. Our short-term oscillators detect positive momentum. The RSI edged up towards its 70 line, while the MACD rebounded from near its zero line and crossed above its signal line. Nevertheless, the RSI has turned somewhat down after hitting resistance fractionally below 70, thus I would be careful of a possible pullback before the bulls seize control again. As for the broader trend, I believe that a move above the psychological zone of 1.1500 (R3) is the move that could carry larger bullish implications.
• Support: 1.1300 (S1), 1.1200 (S2), 1.1145 (S3)
• Resistance: 1.1380 (R1), 1.1465 (R2), 1.1500 (R3)
• GBP/USDaccelerated higher yesterday after data showed that wages in the UK rose by more than expected. Cable soared and managed to overcome the 1.5800 (S1) resistance (now turned into support), defined by the highs of the 14th and 15th of May. The short-term picture remains positive in my view and therefore I would expect the pair to continue trading higher and challenge the 1.5950 (R1) line in the near future, marked by the high of the 11th of November. Our oscillators detect strong upside speed and corroborate the view that we are likely to see the pair trading higher. The RSI entered its above-70 territory and is pointing north, while the MACD accelerated above both its zero and signal lines. Switching to the daily chart, I see that after rebounding from the 50% retracement level of the 14th of April - 15th of May up leg, GBP/USD moved back above the 80-day exponential moving average. In my view, yesterday’s move above 1.5800 (S1) confirmed that the overall picture has turned positive as well.
• Support: 1.5800 (S1), 1.5700 (S2), 1.5600 (S3)
• Resistance: 1.5950 (R1), 1.6000 (R2), 1.6175 (R3)
• USD/JPYtumbled on Wednesday, after hitting resistance at 124.50 (R2). The rate fell back below the 123.80 (R1) line and subsequently dipped below the short-term uptrend line taken from back the 14th of May. The short-term bias has now turned negative and I would expect a move below the support line of 123.10 (S1) to open the way for our next support at 122.55 (S2). Looking at our momentum studies, I see that the RSI fell below 50, while the MACD has topped slightly above zero, turned negative again, and fell below its signal line. These signs support my view for further near-term declines. In the bigger picture, the break above the 122.00 (S3) zone on the 26th of May triggered the continuation of the long-term upside path. I would treat any further near-term declines as a corrective phase of the larger uptrend.
• Support: 123.10 (S1), 122.55 (S2), 122.00 (S3)
• Resistance: 123.80 (R1), 124.50 (R2), 125.70 (R3)
• Goldrallied on Wednesday after hitting support near the short-term uptrend line taken from the low of the 5th of June. The precious metal emerged above the resistance turned into support of 1183 (S1), but the advance was halted slightly below the 1190 (R1) barrier. A move above that line is now needed to confirm a forthcoming higher high on the 4-hour chart. Something like that is likely to target our next resistance of 1196 (R2).Our short-term momentum studies support the notion. The RSI raced higher after crossing above 50, while the MACD has poked its nose above both its zero and signal lines. On the daily chart, the move below 1169 on the 5th of June gives a first sign that the overall outlook has probably turned negative. As a result, I would treat any possible short-term advances as a corrective phase.
• Support: 1183 (S1), 1176 (S2), 1173 (S3)
• Resistance: 1190 (R1), 1196 (R2), 1204 (R3)
• DAX /b futures tumbled on Wednesday, after hitting resistance marginally above the 11110 (R1). That move printed a lower high on the 4-hour chart and kept the near-term bias negative. Now the index looks ready to challenge once again the 10870 (S1) line, which happens to be the 38.2% retracement level of the 16th of October – 10th of April advance. A break below that obstacle is likely to challenge the next support at 10760 (S2), marked by the low of the 16th of February. Our momentum studies reveal downside speed and increase the likelihood that we may see the index trading lower in the near term. The RSI turned down after hitting resistance slightly below its 50 line, while the MACD stands below both its zero and trigger lines. In the bigger picture, although the index is trading within a downside channel and below the uptrend line taken from the low of the 16th of October, I prefer to wait for a clear close below 10870 (S1) before I get more confident on the medium-term downside path.
• Support: 10870 (S1), 10760 (S2), 10600 (S3)
• Resistance: 11110 (R1) 11210 (R2), 11350 (R3)
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