Financial News & Fundamental Analysis
EUR/USD - Trading the U.S. Non-Farm Payrolls (NFP) Report
The world’s largest economy is expected to add another 190K job in March, and the ongoing improvement in the labor market should heighten the appeal of the U.S. dollar as it dampens the Fed’s scope to expand the balance sheet further. As the recovery gradually gathers pace, it seems as though the FOMC is slowly moving away from its easing cycle, and the central bank may scale back its asset purchase program over the coming months as the outlook for growth and inflation picks up.
The EURUSD is threatening the downward trending channel following the European Central Bank interest rate decision, but the move above the 200-Day SMA (1.2882) may be short-lived as the long-term bearish flag formation continues to pan out. However, we may see a short-term reversal take shape should NFPs fall short of market expectations, and the EURUSD work its way back towards the 1.3000 figure should the data renew expectations for more Fed support.
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A Surprising Rise in Industrial Production Fuels Hopes for UK Q1 Expansion
1.5300 against the US Dollar. Industrial production rose 1.0% over February, beating expectations for 0.4% and up from the revised 1.3% decline in production in January. Industrial production was down 2.2% from February 2012, according to the Office for National Statistics.
Additionally, manufacturing production rose 0.8% over February, beating expectations for a 0.4% rise in factory production. In negative news for the UK economy, the total trade balance declined to a new six month low of -3.642 billion Pounds in February, versus expectations for -2.8 billion Pounds and down from a revised 2.494 billion Pound trade deficit in January.
Euro Rally to Get Capped, Further ECB Support on Horizon
Euro: Spain Calls for More ECB Action to Repair Transmission Mechanism
The Euro pared the overnight advance to 1.3067 as Spanish Prime Minister Mariano Rajoy said the EU should consider revamping the European Central Bank’s (ECB) mandate, while Economy Minister Luis de Guindos argued that the Governing Council should introduce measures to address ‘fragmentation of the capital markets’ as the euro-area remains mired in recession.
Moreover, Mr. Guindos said the ECB should take further steps in repairing the transmission of monetary policy amid the ongoing turmoil in the periphery countries, while U.S. Treasury Secretary Jacob Lew encouraged the region to adopt policies that foster consumer demand as the outlook for growth and inflation remains weak.
Crude Oil May Fall as Gold Gains on US Jobless Claims Data
Commodity prices are little-changed ahead of the US trading session. A relatively quiet economic calendar is headlined by weekly Jobless Claims figures. Economists’ forecasts call for a slight improvement on the closely-watched Initial Claims print, but a downside surprise in line with the deterioration in US news-flow relative to expectations since late March seems like a distinct possibility. Such an outcome may weigh on risk appetite, pushing cycle-linked crude oil and copper prices lower. A soft print may be supportive for gold and silver however, reinforcing Fed QE continuity expectations and thereby amplifying anti-fiat demand while compounding overnight pressure on the US Dollar.
Spot Gold (NY Close): $1558.54 // -26.80 // -1.69%
Prices recoiled from resistance at 1586.48, the 23.6% Fibonacci expansion, taking out support at 1565.69 marked by the 38.2% level. Sellers now aim to challenge the 50% Fib at 1458.89, with a drop below that eyeing the 61.8% expansion at 1532.09. Alternatively, a reversal back above 1565.69 exposes 1586.48 anew.
Commodities: Gold Rebound May Be Short-Lived on US Inflation Drop
Commodity prices are correcting higher as financial markets digest yesterday’s aggressive flare-up in risk aversion. Sentiment-linked crude oil and copper prices are following S&P 500 index futures higher ahead of the opening bell on Wall Street.
Risk appetite may find added fuel from expected improvements in Housing Starts and Building Permits. US economic data has increasingly underperformed relative to economists’ forecasts since late March however, keeping the door open for downside surprises to punish sentiment anew.
The recovery in gold and silver may be capped even in the event of a broadly risk-on scenario as signs of ebbing inflation sap anti-fiat demand. The US Consumer Price Index report is penciled in to show the year-on-year price growth rate slowed to 1.6 percent in March, matching a six-month low recorded in January.
Gold, Crude Oil Sold as PMI Data Sparks Risk Aversion
Commodity prices are under pressure as risk aversion sweeps financial markets amid renewed concerns about a slowdown in global growth following disappointing Chinese and Eurozone PMI figures. Cycle-sensitive crude oil and copper prices are following stocks lower while gold and silver are facing de-facto pressure as haven demand boosts the US Dollar, denting demand for anti-fiat assets.S&P 500 index futures are pointing higher however, hinting there may be scope for a reversal. The March set of US New Home Sales data as well as April’sRichmond Fed Manufacturing Survey headline the economic calendar.
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WTI Crude Oil (NY Close): $89.19 // +0.92 // +1.04%
Prices are re-testing resistance-turned-support at 88.45, the 23.6% Fibonacci retracement. A reversal back beneath that aims for the 14.6% level at 87.37. Near-term resistance is now at 90.21, the 38.2% Fib.
EUR Looks Lower on Deepening Recession- ECB Support on Horizon
Euro: EU to Consider More Extensions, ECB Sees ‘Major Concern’
The Euro tumbled to 1.2971 as manufacturing and service-based activity in Europe contracted for the fifteenth consecutive month in April, while the EU said it would ‘consider an extension of the deficit target deadline in the case of some member states’ as governments operating under the single currency struggle to get their house in order.
As the euro-area remains mired in recession, European Central Bank (ECB) board member Christian Noyer warned that the lack of lending to small firms remain a ‘major concern’ for the region, and we may see a growing number of central bank officials show a greater willingness to push the benchmark interest rate to a fresh record-low as the economic downturn persistently threaten price stability.
However, as European officials become increasingly reliant on monetary support, the Governing Council may introduce more non-standard measures over the coming months, and the ECB may have little choice but to embark on its easing cycle throughout 2013 as the outlook for growth and inflation remains tilted to the downside.
As the EURUSD struggles to maintain the range-bound price action from earlier this week, we should see the pair continue to retrace the rebound from 1.2743, and we may see the euro-dollar make another run at the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as European policy makers retain a reactionary approach in addressing the risks surrounding the region.
Dollar Can’t Gain Traction at Multi-Year Highs, Watch USD/JPY
Another day, another two-and-a-half year high from the Dow Jones FXCM Dollar Index (ticker = USDollar). Yet, ‘new high’ gives a false sense of strength to the lackluster greenback. In reality, the benchmark currency has made little effort to capitalize on its move above March’s swing high and in fact has utterly failed to generate meaningful follow through to convince the market that the bulls are in charge. The issue remains the headwinds seen in risk trends. While the safe haven dollar is climbing, so too is the S&P 500 leading global equities to hearty gains. While the two can move in concert to some degree thanks to the competitive monetary policy programs across the world, a genuine trend requires the support of the more elemental themes. The best way for USDollar to overtake 10,600 is for a maket-wide risk aversion.
The preliminary set of first-quarter UK GDP figures headlines the economic calendar in European hours. Expectations suggest output expanded 0.1 percent, narrowly avoiding a triple-dip recession. Data from Citigroup suggests news-flow has tended to underperform relative to expectations over recent months however, opening the door for a downside surprise. Such an outcome is likely to weigh on the British Pound as traders build out expectations for an expansion of BOE stimulus effort.
The US Dollar faced broad-based selling pressure in overnight trade, down as much as 0.3 percent against its top counterparts, as a pickup in risk appetite put downward pressure on the go-to safe haven currency. The MSCI Asia Pacific regional benchmark equity index added 0.8 percent. The likewise safety-linked Japanese Yen managed to find support however. While a readily apparent catalyst for the divergence is unclear, the Yen may have enjoyed vaguely supportive comments from Finance Minister Taro Aso and BOJ Governor Hirohiko Kuroda, both of whom talked down intentions to weaken the currency.
Crude Oil, Gold May Not Find Support in US GDP Data
Commodity prices are under pressure in European trade as risk appetite flounders across the financial markets. Cycle-sensitive crude oil and copper prices are following stocks. Gold and silver are likewise under pressure, although losses are relatively modest as an overnight decline in USDJPY keeps the greenback broadly contained, underpinning anti-fiat assets. S&P 500 index futures are trading lower, hinting the risk-on dynamic is likely to carry forward as Wall Street comes online.
On the economic data front, the spotlight is on the first-quarter US GDP report from here. Expectations suggest output grew at an annualized pace of 3 percent, marking a strong recovery from the paltry 0.4 percent increase recorded in the three months through December 2012. The outcome may not offer much support to risk appetite absent a meaningful upside surprise however.
Much of the weakness that has recently spooked the markets about the prospects for US recovery has come from March data. That means the cumulative GDP figure will be inherently skewed toward the far more encouraging results seen in the first two months of the year. This is arguably old news at this point and may not alleviate worries about another coordinated global downturn in the pipeline.
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EUR/USD- Trading the European Central Bank (ECB) Rate Decision
Governing Council may show a greater willingness to further embark on its easing cycle, and we may see the EURUSD continue to give back the rebound from November (1.2659) as the central bank preserves its one and only mandate to ensure price stability.
How To Trade This Event Risk
Trading the given event risk may not be as clear cut as some of our previous trades as the ECB sticks to its current policy, but the fresh batch of central bank rhetoric may set the stage for a long Euro trade should the Governing Council remain upbeat on the economy. Therefore, if President Draghi strikes a more neutral tone for monetary policy and talks down bets for a rate cut, we will need a green, five-minute candle following the statement to generate a buy entry on two-lots of EURUSD. The second target will be based on discretion, and we will move