Sunday, April 19, 2009
Short-Term Forex Technical Outlook: EUR/GBP
Expectations for a rate cut by the European Central Bank paired with the split amongst the Governing Council has dragged on the euro, and the EUR/GBP may continue to retrace the advance from November as investors hold long-term expectations for higher interest rates in the U.K. After reaching a low of 0.8233 on 11/28, the pair surged to a high of 0.9805 in December as the Bank of England slashed borrowing costs to a record-low in an effort to stimulate the ailing economy, and the lack of momentum to push back above 0.9480-90 (21.4% Fib) should continue to lead the pair lower over the near-term. Over the next few hours of trading, we may see the euro-pound find support at 0.8830-40 (61.8% Fib) and may attempt to retrace the sell-off from the previous week to fill-in the gap from the 120 SMA however, as equity futures foreshadow a lower open for the European and the U.S. markets, a drop in market sentiment could lead the pair lower over the week. Nevertheless, as the economic docket for the U.K. is expected to reinforce a weakening outlook for growth and inflation this week, deteriorating fundamentals is likely to weigh on the British pound, and the pair may continue to hold a broad range over the near-term as the downturn in the global economy intensifies.
Forex Market Update: EUR/USD Takes Out Stops and Options on Trichet Comments
The EUR-USD moves dictated the trading action in Asia today with the EUR-USD plunging through stops at 1.3000 and 1.2970, and dragging AUD, NZD, GBP and CAD all lower in the process. The catalyst could easily have been just to target the stops, but comments from ECB's Trichet over the weekend, suggesting the possibility of a May 25 bp ECB rate cut and other easing measures also helped to fuel the selling. EUR-USD dropped from highs of 1.3049 to lows of 1.2966. The large slide in EUR-JPY on the back of the EUR weakness, also helped weigh on USD-JPY and JPY crosses with USD-JPY falling from 99.41 to lows of 98.63. Asian stocks were mixed today. U.S. treasury yields retreated after strong gains on Friday in NY.
Euro Session: What to Expect
With no data on the economic calendar, risk trends are likely to dominate price action in European trading hours. The global equities rally that began on March 10th has taken the MSCI World Stock Index to resistance at the top of a falling channel that has contained prices since mid-October of last year. That metric is now -90.4% inversely correlated with the US Dollar Index, an average value of USD against six top currencies, suggesting that any reversal in risk appetite across global stock exchanges will boost the greenback further.
Asia Session Highlights
UK House Prices rose for the third consecutive month in April according to Rightmove, an online listing of for-sale properties. Still, it seems premature to conclude that the data is indicative of a robust, sustainable rebound in demand for big-ticket purchases, a development that would be reflective of buyers’ expectations that the economy will improve in the near future. Indeed, the latest data has seen consumer confidence return to record lows while NIESR, a think tank, said the economy shrank 1.5% in the first quarter and could “continue to decline for up to another year.” Prices declined -7.3% from a year ago, a smaller decline than last month’s -9.0% but a significant one nonetheless.
Australia’s Producer Price Index unexpectedly fell in the first quarter, bringing the annual pace of wholesale inflation to 15-month low at 4.0%. The reading points to downward pressure on consumer prices (the headline inflation gauge) as companies pass on lower production costs via cheaper finished goods, giving the Reserve Bank of Australia scope for to cut interest rates again as the economic downturn deepens. Although the central bank has signaled the easing cycle is over, Westpac Banking Corp’s chief economist Bill Evans said last week the decision to hold off lowering rates now is likely a tactical one given the confidence boost typically seen after such actions: “We expect the bank will see the need to have ample capacity to be cutting rates through the second half of 2009…The economic case for cutting rates is undeniable.” The Westpac Leading Index fell -5.1% in the year to February, the worst since 1982, convincing Evans that “the Australian economy will enter a recession.”
The ECB’s Bini Smaghi sounded notably hawkish in a speech today, warning against loosening monetary policy “too much” and saying that 1% floor for benchmark interest rates is “credible”. Smaghi added that he sees no risk of deflation – rather, he sees inflation expectations rising, not falling. The ECB member’s comments ought to be taken with a grain of salt, however, as he himself has noted as recently as this month that “[forex] markets are prone to episodes of overshooting and undershooting…public intervention in the form of public statements…may thus be warranted.” Last week, ECB President Jean-Claude Trichet also defended the a “measured approach”, saying this was key to restoring market confidence.
Australia’s Producer Price Index unexpectedly fell in the first quarter, bringing the annual pace of wholesale inflation to 15-month low at 4.0%. The reading points to downward pressure on consumer prices (the headline inflation gauge) as companies pass on lower production costs via cheaper finished goods, giving the Reserve Bank of Australia scope for to cut interest rates again as the economic downturn deepens. Although the central bank has signaled the easing cycle is over, Westpac Banking Corp’s chief economist Bill Evans said last week the decision to hold off lowering rates now is likely a tactical one given the confidence boost typically seen after such actions: “We expect the bank will see the need to have ample capacity to be cutting rates through the second half of 2009…The economic case for cutting rates is undeniable.” The Westpac Leading Index fell -5.1% in the year to February, the worst since 1982, convincing Evans that “the Australian economy will enter a recession.”
The ECB’s Bini Smaghi sounded notably hawkish in a speech today, warning against loosening monetary policy “too much” and saying that 1% floor for benchmark interest rates is “credible”. Smaghi added that he sees no risk of deflation – rather, he sees inflation expectations rising, not falling. The ECB member’s comments ought to be taken with a grain of salt, however, as he himself has noted as recently as this month that “[forex] markets are prone to episodes of overshooting and undershooting…public intervention in the form of public statements…may thus be warranted.” Last week, ECB President Jean-Claude Trichet also defended the a “measured approach”, saying this was key to restoring market confidence.
US Dollar Advances Against Euro, British Pound as Stocks Meet Resistance
The US Dollar extended gains against the Euro and the British Pound in overnight trading as an index of global stock performance tested key resistance, fueling demand for safe-haven assets. With no data on the economic calendar, risk trends are likely to dominate price action in European trading hours. The Euro extended losses in overnight trading, testing as low as 1.2967 to the US Dollar. The British Pound followed suit, slipping as much as -0.7% against the greenback.
Thursday, April 16, 2009
Yen Technical Outlook
The 61.8% of 110.71-87.09 at 101 has held as USDJPY resistance. The next level of potential resistance is a resistance line drawn off of the July 2007 and August 2008 highs. That line is at 103.55 this week and decreases about 20 pips per week. However, with price trading below a parallel support line AND COT data warning of a sentiment extreme, it is worth punting on a short against 100.76. The long term trend remains down and I am looking for a resumption of that trend. The downside potential is significant.
Euro Falls On Weak China GDP and Record Low Industrial Production, Will JP Morgan Chase Earnings Increase Optimism?
The Euro has steadily declined since China’s GDP report was released erasing gains from yesterday built on the rising U.S. equity markets. The world’s third biggest economy saw growth fall to its slowest pace in nearly a decade at 6.1% as exports continued to decline. The country has been a source of growth for the global economy and slumping demand for its goods is a reflection of the weakness that has gripped the broader economy. The euro/ dollar had reached as high as 1.3270 before its current descent which sent it to 1.3130 before finding support. Euro-zone February industrial production falling by a record 18.4% added to bearish sentiment lead by a 4.3% drop in durable goods. Also, the region’s March CPI was confirmed at 0.6% which will perpetuate deflation concerns as it is below the central bank’s 2% target.
The Euro-zone continues to show signs of weakness and the lowest level of activity since record keeping began in 1986 underlines the region’s troubles. As factories continue to slash employees as they try and cut costs amidst falling output, we may see the worst recession in 60 years continue to deepen. The ECB is starting to finally talk of taking aggressive measures to curb the downturn with influential committee member Axel Weber talking quantitative easing and further rate cuts yesterday. The head of the Bundesbank said that the central bank should focus its non-standard efforts at banks instead of capital markets as is the case with the Fed and BoE. He would also argue for the use of a rate cut to battle potential deflationary pressures but warned that cutting below 1% could discourage interbank lending and lead to additional problems. Therefore, expectations are that the ECB will announce quantitative easing measures at their next policy meeting with a rate cut at the subsequent gathering. Having fallen below the 100-Day SMA a test of the 50-Day SMA at 1.3035 seems highly likely for the EUR/USD.
The Pound also saw weakness on the dour global growth outlook which saw the sterling/dollar fall 200 pips from 1.5070 to 1.4870. Unlike the Euro the cable has had growing support as the pair took out the February 9trh high of1.4988 yesterday which leaves the 1/9 high of 1.5375 as the next barrier. Unless, we see a significant bout of risk aversion we expect the pound to continue its upward trajectory as the BoE has been ahead of the curb in providing liquidity to its markets which should start to bear fruit in the second half of 2009.
The dollar saw across the board gains during overnight trading as global growth fears were fueled by China’s weak GDP figures. U.S. markets shook off similar concerns yesterday but a source of recent optimism has been the expectations that China would rebound faster than originally expected. Now that this has been brought onto question focus will turn to the prospect of a U.S. recovery, which today’s economic docket will shed some light as we will see housing, employment and manufacturing data cross the wires. Housing starts are expected to slip to 540,000 after February’s unexpected surge to 583,000. Meanwhile, initial jobless claims are expected to fall to 660,000 from 654,000 which should add to current growth fears as the fundamental data demonstrates that the labor market continues to deteriorate which will threaten any recovery in the housing sector and the broader economy. Therefore, we should continue to see dollar support if the domestic growth outlook follows the dimming global prospects. However, an unexpected improvement in these figures in conjunction with the expected improvement in the Philadelphia Fed manufacturing reading could help offset current pessimism and weigh on the green back. Additionally, JP Morgan Chase is due to report earnings and if they can continue the trend of positive earnings from the banking sector it could help fuel optimism.
The Euro-zone continues to show signs of weakness and the lowest level of activity since record keeping began in 1986 underlines the region’s troubles. As factories continue to slash employees as they try and cut costs amidst falling output, we may see the worst recession in 60 years continue to deepen. The ECB is starting to finally talk of taking aggressive measures to curb the downturn with influential committee member Axel Weber talking quantitative easing and further rate cuts yesterday. The head of the Bundesbank said that the central bank should focus its non-standard efforts at banks instead of capital markets as is the case with the Fed and BoE. He would also argue for the use of a rate cut to battle potential deflationary pressures but warned that cutting below 1% could discourage interbank lending and lead to additional problems. Therefore, expectations are that the ECB will announce quantitative easing measures at their next policy meeting with a rate cut at the subsequent gathering. Having fallen below the 100-Day SMA a test of the 50-Day SMA at 1.3035 seems highly likely for the EUR/USD.
The Pound also saw weakness on the dour global growth outlook which saw the sterling/dollar fall 200 pips from 1.5070 to 1.4870. Unlike the Euro the cable has had growing support as the pair took out the February 9trh high of1.4988 yesterday which leaves the 1/9 high of 1.5375 as the next barrier. Unless, we see a significant bout of risk aversion we expect the pound to continue its upward trajectory as the BoE has been ahead of the curb in providing liquidity to its markets which should start to bear fruit in the second half of 2009.
The dollar saw across the board gains during overnight trading as global growth fears were fueled by China’s weak GDP figures. U.S. markets shook off similar concerns yesterday but a source of recent optimism has been the expectations that China would rebound faster than originally expected. Now that this has been brought onto question focus will turn to the prospect of a U.S. recovery, which today’s economic docket will shed some light as we will see housing, employment and manufacturing data cross the wires. Housing starts are expected to slip to 540,000 after February’s unexpected surge to 583,000. Meanwhile, initial jobless claims are expected to fall to 660,000 from 654,000 which should add to current growth fears as the fundamental data demonstrates that the labor market continues to deteriorate which will threaten any recovery in the housing sector and the broader economy. Therefore, we should continue to see dollar support if the domestic growth outlook follows the dimming global prospects. However, an unexpected improvement in these figures in conjunction with the expected improvement in the Philadelphia Fed manufacturing reading could help offset current pessimism and weigh on the green back. Additionally, JP Morgan Chase is due to report earnings and if they can continue the trend of positive earnings from the banking sector it could help fuel optimism.
Euro-Zone Inflation Confirm at 0.6%, Industrial Production Drops by the Most on Record
Euro-Zone March HICP inflation was confirmed at 0.6% y/y, in line with the preliminary number and down from 1.2% y/y in February. Prices rose 0.4% m/m. The sharp decline in the annual rate was once again largely due to positive base effects from lower energy prices, with heating oil prices down 34.8% y/y and fuels for transport down 19.0% y/y. However, other prices are also coming down and core inflation, excluding the most volatile items, decelerated to 1.5% y/y from 1.7% y/y in the previous month. This is far below the ECB's 2% upper limit for price stability and will add to arguments for further rate cuts from the ECB with at least some council members starting to get concerned about the risk of deflation.
Euro-Zone February industrial production dropped 2.3% m/m and 18.4% y/y, after -2.4% m/m and -16.0% y/y in the previous month. Production was down 7.6% in the three months to February, which highlights the pace of the contraction. With production down nearly 20% over the year the Euro-Zone is poised for a marked rise in jobless figures if there is no quick turnaround in demand, which judging by orders data is not in sight. Data confirm that Q1 GDP data will look bleak and could even be worse than Q4 numbers.
Euro-Zone February industrial production dropped 2.3% m/m and 18.4% y/y, after -2.4% m/m and -16.0% y/y in the previous month. Production was down 7.6% in the three months to February, which highlights the pace of the contraction. With production down nearly 20% over the year the Euro-Zone is poised for a marked rise in jobless figures if there is no quick turnaround in demand, which judging by orders data is not in sight. Data confirm that Q1 GDP data will look bleak and could even be worse than Q4 numbers.
Euro Session: What to Expect
The final revision of the Euro Zone Consumer Price Index is expected to confirm the annual inflation rate slowed to 0.6% in the year to March, the lowest since the introduction of the Euro. A survey of economists conducted by Bloomberg suggests deepening recession will see the currency bloc’s economy will shrink by a full -3.0% this year, threatening to put inflation into negative territory. Despite the dour outlook, the European Central Bank cut interest rates less than economists expected earlier this month, although bank president Trichet did say that rates had not reached “the lowest limit” and revealed that “the Governing Council intends to decide on further non-standard measures at our next monetary policy meeting”.
Tumbling inflation is also to be noted in Switzerland where Producer and Import Prices are expected to shrink at annual pace of -2.4% in March. The reading suggests continued downward pressure on consumer prices (the headline inflation gauge) after CPI slipped into negative territory for the first time in 5 years to print at -0.4% in the year to March. Weakening domestic conditions will add to external downward pressure on price growth: a survey of economists conducted by Bloomberg suggests that the economy will shrink -2.5% this year, the most since 1975, threatening to entrench deflation expectations. This stands to commit the mountain nation to a long-term stagnation as consumers and businesses perpetually put off spending and investment to wait for the best possible bargain. Although the central bank had previously committed to a very aggressively dovish stance including quantitative easing and currency market intervention, the latter part of the plan may now be off the table considering commitments made at the recent G20 summit in London.
Tumbling inflation is also to be noted in Switzerland where Producer and Import Prices are expected to shrink at annual pace of -2.4% in March. The reading suggests continued downward pressure on consumer prices (the headline inflation gauge) after CPI slipped into negative territory for the first time in 5 years to print at -0.4% in the year to March. Weakening domestic conditions will add to external downward pressure on price growth: a survey of economists conducted by Bloomberg suggests that the economy will shrink -2.5% this year, the most since 1975, threatening to entrench deflation expectations. This stands to commit the mountain nation to a long-term stagnation as consumers and businesses perpetually put off spending and investment to wait for the best possible bargain. Although the central bank had previously committed to a very aggressively dovish stance including quantitative easing and currency market intervention, the latter part of the plan may now be off the table considering commitments made at the recent G20 summit in London.
Monday, April 13, 2009
US Dollar, Euro, Commodity Dollars May Respond to Signs of Deflation Risks
FX trading over the course of this week will likely continue to depend more on risk trends rather than fundamental reports, but there are a handful of indicators that could shake up currencies like the US dollar, euro, New Zealand dollar, and Canadian dollar. The majority of them will have to do with inflation, or rather the lack of, and the news could stoke deflation concerns for the world's biggest economies.
US Advance Retail Sales (MAR) – April 14
The Commerce Department is forecasted to report that US retail sales rose 0.4 percent in March, after slipping 0.1 percent in February, and excluding autos retail sales are anticipated to edge 0.1 percent higher. However, there may be downside risks for this reading as the latest ICSC chain store sales numbers show that the contraction in consumption accelerated during March. Indeed, deteriorating labor markets, tight credit conditions, and a year-long recession weighs heavy on the minds of consumers, but as we’ve seen with reports like US non-farm payrolls, the impact of a disappointing result may be mixed as the Federal Reserve has already cut the fed funds target to a record low range of 0.0 percent - 0.25 percent and has no room to cut further. As a result, traders should keep risk trends in mind, as flight-to-quality tends to benefit the US dollar, even if the US fundamental picture worsens.
US Consumer Price Index (MAR) – April 15
At 8:30 ET, the release of the March reading of the US consumer price index (CPI) is likely to highlight the ultra-slow pace of price growth in the US economy. Indeed, CPI is anticipated to have risen 0.1 percent during the month, bringing the annualized pace to completely stagnate. Meanwhile, the core measure – which excludes volatile food and energy costs – is anticipated to rise 0.1 percent and lead the annualized rate down to 1.7 percent from 1.8 percent. Overall, the news is likely to add to concerns that the US is on a one-way track to deflation, a concern that has been cited by “a few” Federal Open Market Committee (FOMC) members, according to the latest FOMC meeting minutes. However, the markets may only respond to the news of the annualized rate falls negative for the first time since 1955.
Euro-zone Consumer Price Index (MAR F) – April 16
Eurostat inflation estimates for the Euro-zone have shown that CPI may have fallen to a 0.6 percent annual pace during March, which would mark the lowest since recordkeeping began in 1991. More importantly, though, the data would highlight that inflation remains well below the European Central Bank’s 2.0 percent inflation target. If Eurostat confirms this at 5:00 ET, or revises the results to the downside, the euro could pull back, especially since the markets are pricing in a small chance of a 25 basis point cut by the ECB on May 7. On the other hand, if CPI is higher than anticipated, the currency could gain as the markets will speculate that the central bank may pause in their efforts to make monetary policy more accommodative.
New Zealand Consumer Prices (1Q) – April 16
New Zealand's consumer price index is forecasted to have risen 0.3 percent during Q1, bringing the annual rate down to a more than one year low of 3.0 percent from 3.5 percent. During Q4 2008, prices contracted for the first time in two years and by the most in ten years, so unless we see another surprise contraction during Q1, the news may not add to speculation that the Reserve Bank of New Zealand will cut rates again during their next meeting on April 29. As it stands, a Bloomberg News poll of economists is reflecting expectations for a 50 basis point cut to 2.50 percent, while Credit Suisse overnight index swaps are forecasting a 25 basis point reduction to 2.75 percent. As a result, this upcoming inflation report could be highly market-moving for the New Zealand dollar, but if inflation pressures prove to be stronger than anticipated, the currency could rally.
Canadian Consumer Price Index (MAR) – April 17
According to the Bank of Canada’s last Monetary Policy Report in January, the Bank expects core inflation to fall throughout 2009 to a low of 1.1 percent, while headline inflation is expected to fall below zero for two quarters in 2009. Upcoming data will provide an update on how these trends fared during Q1, as the consumer price index (CPI) readings for the month of March will be released. Headline CPI is anticipated to have risen 0.3 percent during March, but the annualized measure should remain well above zero at 1.4 percent. Meanwhile, core CPI is projected to have increased by 0.2 percent, leaving the annualized rate at 1.9 percent. All told, these numbers will reflect fairly stable price growth, albeit below the BOC’s 2 percent target, but if the figures reflect a contraction in prices, the Canadian dollar could pull back across the majors. On the other hand, resilient price growth could contribute to Canadian dollar gains, as the moves would suggest that the Canadian economy is holding up better in the current environment relative to other major economies, like the US.
US Advance Retail Sales (MAR) – April 14
The Commerce Department is forecasted to report that US retail sales rose 0.4 percent in March, after slipping 0.1 percent in February, and excluding autos retail sales are anticipated to edge 0.1 percent higher. However, there may be downside risks for this reading as the latest ICSC chain store sales numbers show that the contraction in consumption accelerated during March. Indeed, deteriorating labor markets, tight credit conditions, and a year-long recession weighs heavy on the minds of consumers, but as we’ve seen with reports like US non-farm payrolls, the impact of a disappointing result may be mixed as the Federal Reserve has already cut the fed funds target to a record low range of 0.0 percent - 0.25 percent and has no room to cut further. As a result, traders should keep risk trends in mind, as flight-to-quality tends to benefit the US dollar, even if the US fundamental picture worsens.
US Consumer Price Index (MAR) – April 15
At 8:30 ET, the release of the March reading of the US consumer price index (CPI) is likely to highlight the ultra-slow pace of price growth in the US economy. Indeed, CPI is anticipated to have risen 0.1 percent during the month, bringing the annualized pace to completely stagnate. Meanwhile, the core measure – which excludes volatile food and energy costs – is anticipated to rise 0.1 percent and lead the annualized rate down to 1.7 percent from 1.8 percent. Overall, the news is likely to add to concerns that the US is on a one-way track to deflation, a concern that has been cited by “a few” Federal Open Market Committee (FOMC) members, according to the latest FOMC meeting minutes. However, the markets may only respond to the news of the annualized rate falls negative for the first time since 1955.
Euro-zone Consumer Price Index (MAR F) – April 16
Eurostat inflation estimates for the Euro-zone have shown that CPI may have fallen to a 0.6 percent annual pace during March, which would mark the lowest since recordkeeping began in 1991. More importantly, though, the data would highlight that inflation remains well below the European Central Bank’s 2.0 percent inflation target. If Eurostat confirms this at 5:00 ET, or revises the results to the downside, the euro could pull back, especially since the markets are pricing in a small chance of a 25 basis point cut by the ECB on May 7. On the other hand, if CPI is higher than anticipated, the currency could gain as the markets will speculate that the central bank may pause in their efforts to make monetary policy more accommodative.
New Zealand Consumer Prices (1Q) – April 16
New Zealand's consumer price index is forecasted to have risen 0.3 percent during Q1, bringing the annual rate down to a more than one year low of 3.0 percent from 3.5 percent. During Q4 2008, prices contracted for the first time in two years and by the most in ten years, so unless we see another surprise contraction during Q1, the news may not add to speculation that the Reserve Bank of New Zealand will cut rates again during their next meeting on April 29. As it stands, a Bloomberg News poll of economists is reflecting expectations for a 50 basis point cut to 2.50 percent, while Credit Suisse overnight index swaps are forecasting a 25 basis point reduction to 2.75 percent. As a result, this upcoming inflation report could be highly market-moving for the New Zealand dollar, but if inflation pressures prove to be stronger than anticipated, the currency could rally.
Canadian Consumer Price Index (MAR) – April 17
According to the Bank of Canada’s last Monetary Policy Report in January, the Bank expects core inflation to fall throughout 2009 to a low of 1.1 percent, while headline inflation is expected to fall below zero for two quarters in 2009. Upcoming data will provide an update on how these trends fared during Q1, as the consumer price index (CPI) readings for the month of March will be released. Headline CPI is anticipated to have risen 0.3 percent during March, but the annualized measure should remain well above zero at 1.4 percent. Meanwhile, core CPI is projected to have increased by 0.2 percent, leaving the annualized rate at 1.9 percent. All told, these numbers will reflect fairly stable price growth, albeit below the BOC’s 2 percent target, but if the figures reflect a contraction in prices, the Canadian dollar could pull back across the majors. On the other hand, resilient price growth could contribute to Canadian dollar gains, as the moves would suggest that the Canadian economy is holding up better in the current environment relative to other major economies, like the US.
Onyx Financial Daily Outlook & Trade Ideas April 13, 2009
EUR/USD – Remains locked in a multi-day consolidation since rallying to 1.3740 in mid-March. At this time it is unclear as to whether we are in the process of carving out a lower top by 1.3740 ahead of the major trend resumption, or attempting to put in a higher low above 1.3000 ahead of fresh upside beyond 1.3740. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
USD/JPY – We continue to favor additional upside over the coming sessions with the market having finally taken out psychological barriers at 100.00, to expose the major 87.15 double bottom objective by 104.00. Only a close back under 99.30 delays. Next key topside resistance comes in by 101.70, the 61.8% fib retrace off of the major 110.70-87.15 move (Aug08-Jan09). Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
GBP/USD – Price action has been constructive since bottoming by 1.3655 on March 11. While the broader structure remains grossly bearish, there is the potential now for a major base taking form with a break back above 1.5000 to help confirm and accelerate gains. Look for a higher low now by 1.4580 to be confirmed on a break back above 1.5000. Above 1.5000 exposes the 1.5375 2009 highs further up. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
USD/CHF - Despite the latest round of sharp setbacks on Monday, our outlook remains constructive with a fresh higher low sought out above 1.1240 ahead of the next upside beyond 1.1625. As such, dips towards 1.1300 should be used as good buy opportunities in anticipation of bull trend resumption. Nevertheless, with daily studies showing neutral, we prefer to remain on the sidelines. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
USD/JPY – We continue to favor additional upside over the coming sessions with the market having finally taken out psychological barriers at 100.00, to expose the major 87.15 double bottom objective by 104.00. Only a close back under 99.30 delays. Next key topside resistance comes in by 101.70, the 61.8% fib retrace off of the major 110.70-87.15 move (Aug08-Jan09). Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
GBP/USD – Price action has been constructive since bottoming by 1.3655 on March 11. While the broader structure remains grossly bearish, there is the potential now for a major base taking form with a break back above 1.5000 to help confirm and accelerate gains. Look for a higher low now by 1.4580 to be confirmed on a break back above 1.5000. Above 1.5000 exposes the 1.5375 2009 highs further up. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
USD/CHF - Despite the latest round of sharp setbacks on Monday, our outlook remains constructive with a fresh higher low sought out above 1.1240 ahead of the next upside beyond 1.1625. As such, dips towards 1.1300 should be used as good buy opportunities in anticipation of bull trend resumption. Nevertheless, with daily studies showing neutral, we prefer to remain on the sidelines. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
Thursday, April 9, 2009
US Dollar, Japanese Yen End on Mixed Note - Price Action May Be Quiet on Friday Due to Market Holiday
The US dollar and Japanese yen ended Thursday on a mixed note, as a market-wide increase in risk appetite only worked to the benefit of the commodity dollars and assets like stocks, with the DJIA ending the day up 3.14 percent at its highs. US economic data, however, was broadly disappointing. While the US trade deficit did narrow to $25.965 billion in February from $36.204 billion, it was due primarily to the continued contraction in imports, which fell 5.1 percent during the month and signals waning domestic demand. Exports rose 1.6 percent during the same period, thanks to an 11.6 percent increase in consumer goods shipments and an 8.5 percent rise in automotive shipments.
Meanwhile, the US import price index rose 0.5 percent in March, which was the first increase in eight months as petroleum costs jumped 10.5 percent during the survey period. However, most other components of the index remained negative and excluding these volatile petroleum costs, import prices were down 0.7 percent and the overall annualized rate reached a fresh record low of -14.9 percent.
Next, initial jobless claims fell by 20,000 during the week ending April 4 to 654,000, but remain dangerously close to the record highs of 674,000 reached last week. Likewise, continuing claims jumped by 95,000 during the week ending March 28 to another record high of 5,840,000, suggesting that the ascent of the US unemployment rate is unlikely to abate anytime soon, which is exactly what the Federal Open Market Committee (FOMC) indicated in the release of the March meeting minutes yesterday.
Finally, the International Council of Shopping Centers (ICSC) reported that chain store sales tumbled a greater-than-expected 2.1 percent in March from a year ago, which denoted the sixth straight month of contraction. A breakdown of the index shows that department store sales (which include luxury good sales) led the decline, while only drug store and wholesale club sales excluding fuel registered increases, suggesting that the only purchases that consumers are making are for necessities, rather than for discretionary items.
Looking ahead to Friday, many markets will be closed for the Good Friday holiday which should lead to lower liquidity in the forex markets. There are two scenarios that we're likely to see: either very quiet, range-bound price action or extremely choppy price action. Traders should keep this in mind, especially if they are maintaining tight stops on open positions.
Meanwhile, the US import price index rose 0.5 percent in March, which was the first increase in eight months as petroleum costs jumped 10.5 percent during the survey period. However, most other components of the index remained negative and excluding these volatile petroleum costs, import prices were down 0.7 percent and the overall annualized rate reached a fresh record low of -14.9 percent.
Next, initial jobless claims fell by 20,000 during the week ending April 4 to 654,000, but remain dangerously close to the record highs of 674,000 reached last week. Likewise, continuing claims jumped by 95,000 during the week ending March 28 to another record high of 5,840,000, suggesting that the ascent of the US unemployment rate is unlikely to abate anytime soon, which is exactly what the Federal Open Market Committee (FOMC) indicated in the release of the March meeting minutes yesterday.
Finally, the International Council of Shopping Centers (ICSC) reported that chain store sales tumbled a greater-than-expected 2.1 percent in March from a year ago, which denoted the sixth straight month of contraction. A breakdown of the index shows that department store sales (which include luxury good sales) led the decline, while only drug store and wholesale club sales excluding fuel registered increases, suggesting that the only purchases that consumers are making are for necessities, rather than for discretionary items.
Looking ahead to Friday, many markets will be closed for the Good Friday holiday which should lead to lower liquidity in the forex markets. There are two scenarios that we're likely to see: either very quiet, range-bound price action or extremely choppy price action. Traders should keep this in mind, especially if they are maintaining tight stops on open positions.
British Pound Consolidates as BOE Leaves Rates Unchanged, Will Continue QE Efforts
The British pound has remained contained to a tight range versus the US dollar of 1.4600-1.4750, as the Bank of England left the Bank Rate at a record low of 0.50 percent, as expected, which marked the first “no change” decision since September 2008. The BOE Monetary Policy Committee’s (MPC) statement was short and sweet, providing little in the way of new information. The MPC did indicate that they would continue with the quantitative easing efforts announced on March 5, but that it would take another two months before the program was completed because they had only purchased 26 billion pounds in assets of the planned total of 75 billion pounds. Ultimately, there are still significant downside risks for the UK’s economy and financial system, but as it stands, the markets are broadly anticipating that the BOE will continue to leave the Bank Rate at 0.50 percent throughout the remainder of the year, since further reductions are unlikely to have much of an impact. In the near-term, it may be worth looking for a GBP/USD break out of its recent range, but of risk aversion returns, the pair’s break could be a bearish one.
Euro the Weakest of the Majors as ECB’s Monthly Bulletin Points to Deflation Risks
The euro was the weakest of the majors as evidence continues to point to another rate cut by the European Central Bank (ECB) and a move toward quantitative easing. On Tuesday we saw that the final reading of Q4 GDP was unexpectedly revised to a new record low of -1.6 percent from -1.5 percent, and heard ECB Governing Council member George Provopoulos say during an interview that the bank’s benchmark rate could be cut by at least another 25 basis points, as he did not “see 1 percent as a threshold,” and that he would “not exclude that the ECB could go down further from this level if the economic environment deteriorates further.” On Wednesday Fitch announced that they had downgraded Ireland’s sovereign credit rating to AA+ from AAA, and issued a negative outlook. On Thursday the ECB’s monthly bulletin highlighted their concerns about growth both domestically and abroad, as well as the potential for inflation figures to fall negative mid-year. While they noted that short-term changes in price pressures would not impact the central bank’s monetary policy decisions, it is hard to believe that the prospect of deflation is not disconcerting to many of the ECB’s voting members. By Thursday’s close, Credit Suisse overnight index swaps were now pricing in a 21.5 percent chance of a 25 basis point cut to 1.00 percent during the ECB’s next meeting, but there is plenty of time for market expectations to shift ahead of that May 7 meeting.
Commodity Dollars Dominate as ‘Risky’ Assets Rally Across the Board
The Australian dollar, New Zealand dollar, and Canadian dollar were easily the strongest of the major currencies on Thursday due to increased risk appetite, rather than fundamental forces. In fact, economic releases from Australia and Canada were disappointing, as the Australia’s employment change fell by a greater-than-expected 34,700 in March, pushing the unemployment rate up to a five-year high of 5.7 percent, while the Canadian employment change plunged by 61,300 during the same period, bringing the unemployment rate up to match the December 2001/January 2002 high of 8.00 percent. None of this stopped the Aussie and Loonie from testing their monthly highs against the US dollar, but traders should be sure to watch for either a break above or drop lower in the near-term.
What To Expect In The Euro Session
The interest rate announcement from the Bank of England headlines the economic calendar in European hours. While expectations widely call for policy rates to remain unchanged at the record-low 0.50%, price action may turn volatile regardless if Mervyn King and company signal an expansion to standing quantitative easing measures. So far, the bank has committed to buying 75 billion pounds in medium- and long-term government bonds. The growth and inflation outlooks are certainly supportive of a looser monetary stance: reputable think tank NIESR reported that the economy shrank -1.5% through the first quarter and could continue to contract for up to one more year; meanwhile, the Producer Price Index is set to fall to 2.1% in the year to March, the lowest since August 2007, pointing to downward pressure on consumer prices (the headline inflation gauge) in the pipeline as manufacturers pass on lower production costs via cheaper finished goods. Separately, the Trade Balance deficit is expected to narrow to 3.45 billion pounds in February from 3.58 billion in the prior month. This seems plausible if lackluster consumer demand weighs enough on imports to outpace the drop in outbound shipments, the latter fueled by the impact of the global downturn on foreigners’ purchases of UK wares. Indeed, consumer confidence has been hovering near record lows since January.
Turning to the continent, the final revision of Germany’s Consumer Price Index is set to confirm initial estimates calling for headline inflation to slow to 0.5% in the year to March, the lowest in nearly a decade. Despite tumbling prices and deepening recession across the Euro region, the European Central Bank cut interest rates less than economists expected last week, although bank president Trichet did say that rates had not reached “the lowest limit” and revealed that “the Governing Council intends to decide on further non-standard measures at our next monetary policy meeting”.
Switzerland’s annual Unemployment Rate is set to tick higher for the fifth consecutive month, rising to 3.3% in the year to March. The reading points to further downward pressure on economic growth: private consumption accounts for about 57% of total output and job losses will surely weigh on disposable incomes and trim spending. The government has forecast the economy will shrink -2.2% this year, the most since 1975.
Turning to the continent, the final revision of Germany’s Consumer Price Index is set to confirm initial estimates calling for headline inflation to slow to 0.5% in the year to March, the lowest in nearly a decade. Despite tumbling prices and deepening recession across the Euro region, the European Central Bank cut interest rates less than economists expected last week, although bank president Trichet did say that rates had not reached “the lowest limit” and revealed that “the Governing Council intends to decide on further non-standard measures at our next monetary policy meeting”.
Switzerland’s annual Unemployment Rate is set to tick higher for the fifth consecutive month, rising to 3.3% in the year to March. The reading points to further downward pressure on economic growth: private consumption accounts for about 57% of total output and job losses will surely weigh on disposable incomes and trim spending. The government has forecast the economy will shrink -2.2% this year, the most since 1975.
Asia Session Highlights
Japanese Machine Orders surprisingly rose in February, by 1.4%, after the dour month of economic data led forecasters to call for a decline in the figure of -7.0%. February’s figure is the strongest of such since September, when orders grew by 5.5% in the single month. Generally, such a rise in a leading indicator like this would insinuate that the overall economic picture may be starting to improve as the demand for capital intensive goods begins to rise. Such a positive outlook may not necessarily be the rational thing to feel. Much of the underlying activity in the performance of the figure came from an 86.7% rise in the orders for textile machinery. Looking back at history, we’ve noticed that February is an unusually impressive month in terms of the demand for textile machinery; last February this portion of the metric rose 448%. One explanation for such increases during the month is that Japanese clothing manufacturers begin to prepare and produce for the warmer weather 2-3 months prior to the actual realization of the warmth. Demand for non-ferrous metals were the second strongest in the month. Such metals include copper, which had the largest 3-month price rise since 1985 in 09Q1. In essence, much of the rise in the demand for these non-ferrous metals has been price-based and not volume-based. As such, we cannot infer that the surprise move by machine orders is indicative of a sooner-than-expected recovery in the Japanese economy.
Australian labor data performed much weaker than that which had been anticipated by the median forecast of economists surveyed. Indeed, the unemployment rate spiked to a 6-year high of 5.7% in March after expectations called for a hike of only 0.2 percentage points from 5.2%. March also saw 34.7K overall jobs lost with 40K full-time ones being eliminated. Over the last 6 months, the number of these full-time slots has plummeted by 115.2K; a substantial portion considering a labor force of only 11 million. The figures come just 8 days after Deputy Prime Minister, then acting as Prime Minister while Kevin Rudd was in Britain for the G20 conference, Julia Gillard, stated that the rate of unemployed would likely favor the 7.0% mark in the coming months.
Inflation expectations among Australians notched up from March’s decade low by 0.2 percentage points, to 2.4% in April. Of the laborers surveyed in the four occupational classes, only the clerks and salespersons category expected inflation to rise. This may be due to the notion that those working in this category will be those who benefit the least from Australia’s previous two stimulus packages. The dual-plans, which may become a trio in May, seek to give cash grants primarily to families. Since salespersons are more likely to be younger and hence less likely to have a family, they may feel that inflation will disproportionately affect them in greater numbers.
Australian labor data performed much weaker than that which had been anticipated by the median forecast of economists surveyed. Indeed, the unemployment rate spiked to a 6-year high of 5.7% in March after expectations called for a hike of only 0.2 percentage points from 5.2%. March also saw 34.7K overall jobs lost with 40K full-time ones being eliminated. Over the last 6 months, the number of these full-time slots has plummeted by 115.2K; a substantial portion considering a labor force of only 11 million. The figures come just 8 days after Deputy Prime Minister, then acting as Prime Minister while Kevin Rudd was in Britain for the G20 conference, Julia Gillard, stated that the rate of unemployed would likely favor the 7.0% mark in the coming months.
Inflation expectations among Australians notched up from March’s decade low by 0.2 percentage points, to 2.4% in April. Of the laborers surveyed in the four occupational classes, only the clerks and salespersons category expected inflation to rise. This may be due to the notion that those working in this category will be those who benefit the least from Australia’s previous two stimulus packages. The dual-plans, which may become a trio in May, seek to give cash grants primarily to families. Since salespersons are more likely to be younger and hence less likely to have a family, they may feel that inflation will disproportionately affect them in greater numbers.
Wednesday, April 8, 2009
US Dollar, Japanese Yen Gain as FOMC Minutes Reflect Dreary GDP, Unemployment Outlooks
The US dollar and Japanese yen were amongst the stronger currencies on Wednesday, though we’ve seen little in the way of “breakouts”, as the release of the Federal Open Market Committee’s (FOMC) meeting minutes from March wasn’t exactly groundbreaking since there was little in the way of new details revealed. During March, the FOMC left the fed funds target range at 0.0 percent - 0.25 percent but the big surprise was that they officially announced quantitative easing efforts. The only noteworthy part of the minutes was that the FOMC staff projections for the second half of 2009 and 2010 were downgraded from the FOMC’s long-run projections for growth, unemployment, and inflation in January. While the exact revisions were not published, the minutes did say that GDP was expected to “flatten out gradually over the second half of this year and then to expand slowly next year,” and that this “weaker trajectory of real output resulted in the projected path of the unemployment rate rising more steeply into early next year before flattening out at a high level over the rest of the year.” All told, this suggests that Q3 and Q4 GDP results aren’t likely to show any sort of recovery, while the unemployment rate could breach the upper range of the FOMC’s projections of 9.2 percent, and perhaps reach double-digits.
Looking ahead to Thursday, risk trends are likely to remain the primary driver of US dollar and Japanese yen price action. There will be a few US economic indicators on hand, including the trade balance (expected to have held steady at -$36 billion in February), the import price index (expected to have risen 0.9 percent in March, but remain down 14.7 percent from a year ago), and jobless claims (initial and continuing claims should remain near record highs).
Looking ahead to Thursday, risk trends are likely to remain the primary driver of US dollar and Japanese yen price action. There will be a few US economic indicators on hand, including the trade balance (expected to have held steady at -$36 billion in February), the import price index (expected to have risen 0.9 percent in March, but remain down 14.7 percent from a year ago), and jobless claims (initial and continuing claims should remain near record highs).
British Pound Lags Ahead of BOE Rate Decision on Thursday - What to Watch For
The British pound slumped versus most of its major counterparts, despite the fact that for the first time since the summer of 2008, the Bank of England is expected to leave rates unchanged on Thursday. Indeed, both Credit Suisse overnight index swaps and a Bloomberg News poll of economists reflect forecasts that the BOE will leave the Bank Rate at an all-time low of 0.50 percent at 7:00 ET on Thursday. A look at their March 5 policy statement shows that the BOE’s Monetary Policy Committee (MPC) expects both growth and inflation to fall lower in coming months and also announced a new 75 billion pound asset purchase program, which included the buying of medium and long-term gilts. Ultimately, how the British pound responds will likely depend on two factors: whether or not the BOE asserts that they want to avoid cutting the Bank Rate to zero, and whether or not they indicate that they want to expand their quantitative easing (QE) efforts. Signs that the BOE is open to reducing rates further or signs that they will increase their gilt purchases could weigh heavily on the British pound, especially against the euro, while the opposite (steady rates, no QE expansion) could provide a boost to the UK’s currency and lead EUR/GBP back below 0.9000.
Euro Slips Further as Ireland’s Credit Downgrade by Fitch Adds to ECB Rate Cut Risks
The euro remained under pressure versus most of the majors yet again as evidence continues to point to another rate cut by the European Central Bank (ECB) and a move toward quantitative easing. Yesterday we saw that the final reading of Q4 GDP was unexpectedly revised to a new record low of -1.6 percent from -1.5 percent, due primarily to downward revisions to gross fixed capital formation (capital goods investment) to -4.0 percent from -2.7 percent. We also saw, ECB Governing Council member George Provopoulos say during an interview that the bank’s benchmark rate could be cut by at least another 25 basis points, as he did not “see 1 percent as a threshold,” and that he would “not exclude that the ECB could go down further from this level if the economic environment deteriorates further.” Then, today, Fitch announced that they had downgraded Ireland’s sovereign credit rating to AA+ from AAA, and issued a negative outlook. While S&P already did the same on March 30, the news only highlights the extent of the economic woes for the Euro-zone. All told, Credit Suisse overnight index swaps are now pricing in a 36 percent chance of a 25 basis point cut to 1.00 percent during the ECB’s next meeting, up from 22.5 percent on Tuesday, but there is plenty of time for market expectations to shift ahead of that May 7 meeting.
Canadian Dollar Could See Breakouts on Upcoming Canadian Employment Figures
The Canadian dollar held up rather well on Wednesday, as USD/CAD continues consolidating within a large triangle formation and above key trendline support near 1.2300. A break higher or lower could be in the cards in the near-term, though, as Canadian economic data will be released on Thursday. At 7:00 ET, reports are forecasted to show that the Canadian net employment change fell by 50,000 during March, marking the fifth straight month of job losses. Furthermore, the unemployment rate is anticipated to have risen to match January 2002 high of 8.8 percent from 7.7 percent. Since the employment change tends to be a very volatile release, this should have the greater impact on the Canadian dollar, with a sharper than expected drop likely to push USD/CAD higher, while an unexpected positive result could weigh the pair below 1.2300.
The Economy And The Credit Market
Traders and other market participants were looking for relief - or at least a sense of clarity - from the G20 meeting last week. For the US dollar, the stakes were especially high. American policy officials have gone out on a ledge in an attempt to turn a domestic recession around; but their efforts are clearly falling short as consumers, businesses and financial institutions realize the crisis is a global one. The best outcome for the summit in London would have been a clear set of actionable steps that would have spread the responsibility for recharging the global economy amongst the world’s largest nations. While the language of the statement was convincing, a critical review suggests a lack of responsibility and time line will inevitably render the promises made ineffective. This leaves the dollar at the mercy of speculation over its role as a safe haven and the potential for its economic slump to devolve into a depression. Considering the jump in the unemployment rate to a quarter century high and the dour forecast from the FOMC statement, it is difficult to locate the dollar’s good qualities.
A Closer Look At Financial And Consumer Conditions
Financial market conditions continue to show general improvement. However, participants are still clearly on edge; and this fragile rebound for confidence in the system could quickly come crashing down should another crisis point develop. This is no doubt the concern of both the Federal Reserve and Treasury Department. It has been suggested that the government will delay the results of its stress test of the United States’ 19 largest banks until after earnings season to avoid an adverse market reaction. And, in their statement, the FOMC said credit “remained very tight,” financial markets were “fragile and unsettled,” and pressure was “intensifying.”
For months, investors and traders have more-or-less overlooked the general health of the US economy. This has been the case because either its global counterparts were in worse shape or demand for liquidity drew capital into the deep end of the market’s pool. However, with fear of liquidity letting up and other governments ramping up fiscal stimulus, the American economy and currency may lose its appeal. And, considering the bearing on economic trends, the future is dimming for the dollar. Last week, NFPs plunged another 663,000 – boosting joblessness to 8.5 percent. This may end up producing what the Fed calls a ‘feedback effect.’
For months, investors and traders have more-or-less overlooked the general health of the US economy. This has been the case because either its global counterparts were in worse shape or demand for liquidity drew capital into the deep end of the market’s pool. However, with fear of liquidity letting up and other governments ramping up fiscal stimulus, the American economy and currency may lose its appeal. And, considering the bearing on economic trends, the future is dimming for the dollar. Last week, NFPs plunged another 663,000 – boosting joblessness to 8.5 percent. This may end up producing what the Fed calls a ‘feedback effect.’
The Financial And Capital Markets
The financial markets seemed to respond positively to the G20’s list of initiatives last week; and it comes as little surprise. Heading into the summit, US equities and commodities were set within a steady advance. As such, the market was merely reacting to the questionable event through its natural bias. However, true investment conditions have not improved with meeting of the world’s most powerful. The commitments made are merely promises for action until nations actually institute the steps drawn up in the statement; and considering the state of individual economies, few will be eager to reroute vital aid away from the domestic fire in order to help extinguish a much bigger financial fire. In the meantime, the capital pool and potential for returns from US assets continue to shrink. Consumer spending threatens to drive the world’s largest economy into a true depression, while the government runs out of options.
A Closer Look At Market Conditions
Capital markets are still attempting to forge ahead with their bear market rallies; but the weight of the situation is starting to get the better of sentiment. For equities, investors are beginning to realize that traditional market valuations (like the P/E ratio) are gauges that are relative. And, considering the economy is suffering its worst slump since the Great Depression, it pays to be extra cautious. As for commodities, a rebound in price must be sustained through a genuine shift in the balance of supply and demand. Thus, while funds may seek safety in the form of physical assets, the impact on price will not be as lasting as a true recovery in growth and demand.
General risk appetite is perhaps the most influential market dynamic in an environment where expansion and investment are left in limbo. It has been said before that we are suffering from a crisis of confidence. However, that is not necessarily true. While sentiment in the market is dour – and no doubt contributing to the difficulty in freeing up the credit markets and spurring a genuine rebound in investment – it is also rooted in objective fundamentals. Yields on assets are near recent historical lows, credit is frozen despite the Fed’s efforts to provide liquidity and the economy is in its worst state in decades. Even a bullish outlook for returns can’t make up for that kind of risk.
General risk appetite is perhaps the most influential market dynamic in an environment where expansion and investment are left in limbo. It has been said before that we are suffering from a crisis of confidence. However, that is not necessarily true. While sentiment in the market is dour – and no doubt contributing to the difficulty in freeing up the credit markets and spurring a genuine rebound in investment – it is also rooted in objective fundamentals. Yields on assets are near recent historical lows, credit is frozen despite the Fed’s efforts to provide liquidity and the economy is in its worst state in decades. Even a bullish outlook for returns can’t make up for that kind of risk.
Trade Brewing - GBPUSD Very Bearish Below 1.4775
The GBPUSD short term intraday pattern is confirming the larger bearish pattern that calls for a drop down to 1.40 as part of a traingle in the week(s) ahead. The wave pattern suggests that the reaction to the Fed minutes will most likely be dollar positive (GBPUSD negative). A short term bearish target is 1.45. 1.4775 should remain intact.
Managed 50K Account Review for Trading Day April 7, 2009
On April 7, 2009 our managed account gained 43 pips in a long USD/JPY trade which netted $12,034.76 for 50K accounts opened March 1, 2009. Bringing the month to date total to a gain of $56,509.07.
A short USD/JPY was initiated and carried overnight when our retraction trade signals hit 100.283 and the trade was liquidated when signals hit 99.703. This trade will be included with trading day April 8, 2009.
For more information on our managed forex accounts please visit www.onyxfinancial.net.
A short USD/JPY was initiated and carried overnight when our retraction trade signals hit 100.283 and the trade was liquidated when signals hit 99.703. This trade will be included with trading day April 8, 2009.
For more information on our managed forex accounts please visit www.onyxfinancial.net.
German Factory Orders Disappoints as Exports Falter
EURUSD – Germany exports fell another 0.7% in February after posting a revised 7.4% decline in previous month, while imports plunged 4.2% during the month amid expectations for a 2.3% drop. As a result, the trade report crossed the wires better than expected as the surplus widened to EUR 8.7B despite projections for a decline to 7.5B. Meanwhile, a separate report showed that German factory orders plunged another 3.5% in February after falling 6.7% in the previous month, while the annualized reading slipped to -38.2% from a revised reading of -36.8% in January, extending their worst decline on record as the downturn in the global economy eroded demand from home and abroad.
GBPUSD – The U.K. BRC shop price index advanced 0.4% during the month after rising 1.2% in February, which raised the annual rate to 2.0% in March. The BRC quoted rising food and import prices as the main cause behind the pick-up in prices, and the data suggests that the Bank of England may adopt a neutral policy stance going forward as the benchmark interest rate remains at a record-low. Meanwhile, the NIESR’s GDP estimate increased to -1.5% in March, compared to -1.6% in the previous month, and the statement accompanying the release said that the current downturn looks “very similar to that of the recession that began in the summer of 1979” and warned that economic activity may remain subdued for another year, and went onto say that it will take nearly two-years for the economy to recover.
GBPUSD – The U.K. BRC shop price index advanced 0.4% during the month after rising 1.2% in February, which raised the annual rate to 2.0% in March. The BRC quoted rising food and import prices as the main cause behind the pick-up in prices, and the data suggests that the Bank of England may adopt a neutral policy stance going forward as the benchmark interest rate remains at a record-low. Meanwhile, the NIESR’s GDP estimate increased to -1.5% in March, compared to -1.6% in the previous month, and the statement accompanying the release said that the current downturn looks “very similar to that of the recession that began in the summer of 1979” and warned that economic activity may remain subdued for another year, and went onto say that it will take nearly two-years for the economy to recover.
Euro, Pound Trade Heavy As Weak Fundamentals And Corporate Earnings Fuel Risk Aversion
The Euro would fall to as low as 1.3147 after a dismal earnings report from aluminum producer Alcoa, which cited declining global demand and freefalling commodity prices as the cause for their $0.59 loss. The fundamental data for the region helped fuel pessimism as German exports fell for a fifth month by 0.7%. However, demand from abroad was stronger than expectations for a 3.3% drop. However, the weaker than expected 4.2% decline in imports underlines the weakening domestic demand and led to the trade balance widening to 8.7 billion from 7.0 billion. Additionally, German factory orders in February fell for a sixth month by 3.5% which dragged the year-over-year total to a fresh record low of 3.82%. A 5.7% decline in domestic demand followed by a 3.7% drop in orders from the Euro-zone, shows that the region continues to fall deeper into a recession. The EUR/USD had climbed back to 1.3229 before the weak fundamental data stalled bullish momentum.
The pound fell to an intraday low as 1.4634 on the back of the NIESR GDP report showing the economy contracted by 1.5% in the first quarter. The current contraction has started to resemble the 1979 recession and although the U.K. economy has started to show signs of life, a deteriorating labor market will limit optimism and lower expectations for domestic growth. Indeed, consumer confidence remained at a record low of 41 despite economists predicting an improvement to 45 which demonstrates the impact of mounting job losses. Despite the deepening recession, the BoE is expected to keep their benchmark rate at 0.50% tomorrow as there is little room for them to maneuver. However, if the central bank hints at further quantitative easing measures then we could see continued sterling weakness. The 100-Day SMA at 1.4559 has provided support for the pair and will become a key level to watch.
The USD/JPY after finding brief support during Asian trading has come under pressure again as risk aversion flows have become a negative influence on the pair. The USD/JOPY would fall to as low as 99.45 before finding support as the uncertainty if the upcoming earnings season has limited risk appetite. The 200-Day SMA at 99.10 is a significant support level and a break below could lead to an extended move lower. However, if the technical level holds its ground and earnings are better than expected then we could see the 10/14 high of 103.08 tested.
The dollar continues to find support as global risk aversion on concerns that more companies will follow Alcoa and report dismal earnings for the first quarter. Today’s economic docket doesn’t present any significant event risk as second tier indicators MBA mortgage applications and wholesale inventories are due for release. An increase in lending could help reverse sentiment as it would continue the theme of improving data from the housing sector, which may signal that a bottom s forming. Many investors see the recovery of the housing sector as a key for the U.S. economy ending its current downturn. Markets may pay the most attention to today’s release of the FOMC’s minutes to get a gauge on the state of the economy and insight into the future course of action for the central bank. A gloomy outlook from policy makers would help fuel pessimism and lend dollar support.
The pound fell to an intraday low as 1.4634 on the back of the NIESR GDP report showing the economy contracted by 1.5% in the first quarter. The current contraction has started to resemble the 1979 recession and although the U.K. economy has started to show signs of life, a deteriorating labor market will limit optimism and lower expectations for domestic growth. Indeed, consumer confidence remained at a record low of 41 despite economists predicting an improvement to 45 which demonstrates the impact of mounting job losses. Despite the deepening recession, the BoE is expected to keep their benchmark rate at 0.50% tomorrow as there is little room for them to maneuver. However, if the central bank hints at further quantitative easing measures then we could see continued sterling weakness. The 100-Day SMA at 1.4559 has provided support for the pair and will become a key level to watch.
The USD/JPY after finding brief support during Asian trading has come under pressure again as risk aversion flows have become a negative influence on the pair. The USD/JOPY would fall to as low as 99.45 before finding support as the uncertainty if the upcoming earnings season has limited risk appetite. The 200-Day SMA at 99.10 is a significant support level and a break below could lead to an extended move lower. However, if the technical level holds its ground and earnings are better than expected then we could see the 10/14 high of 103.08 tested.
The dollar continues to find support as global risk aversion on concerns that more companies will follow Alcoa and report dismal earnings for the first quarter. Today’s economic docket doesn’t present any significant event risk as second tier indicators MBA mortgage applications and wholesale inventories are due for release. An increase in lending could help reverse sentiment as it would continue the theme of improving data from the housing sector, which may signal that a bottom s forming. Many investors see the recovery of the housing sector as a key for the U.S. economy ending its current downturn. Markets may pay the most attention to today’s release of the FOMC’s minutes to get a gauge on the state of the economy and insight into the future course of action for the central bank. A gloomy outlook from policy makers would help fuel pessimism and lend dollar support.
Trading the Net Change in Canadian Employment
The Canadian dollar is likely to face increased selling pressures over the next 24 hours of trading as economists forecast employment to drop another 50.0K in March, while the jobless rate is anticipated to reach an eight-year high of 8.0%, and fears of a deepening recession are likely to weigh on the exchange rate as growth prospects deteriorate at a record pace. The fourth quarter GDP report showed that the annual rate of growth dropped the most since 1991, while labor productivity unexpectedly fell 0.5% from the third quarter, and the outlook for private-spending remains bleak as firms continue to cut back on production and employment in an effort to reduce costs. Moreover, business spending fell for the fifth consecutive month in March, while the leading indicator dropped 1.1% in February, which is the biggest decline since 1981, and the data continues to reinforce a dour outlook for growth and inflation as trade conditions falters. Canada’s trade deficit widened to C$993M in January, which is largest since recordkeeping began in 1971, as exports plunged 9.0% during the month, while manufacturing shipments dropped 5.4% to C$41.7B to reach its lowest level since May 1999, and conditions are likely to get worse as the U.S., Canada’s biggest trading partner, faces its worst recession in over half a century. As a result, BoC Governor Mark Carney dropped his reluctance to use tools beyond the interest rate to manage monetary policy, and said that the central bank stands ready to ‘provide additional monetary stimulus, if required’ through the use of credit and quantitative easing. Accordingly, market participants speculate that the central bank may cut the benchmark interest rate by another 25bp later this month as the economy faces its first recession since 1992, while policymakers may take additional steps to stimulate economic activity as the downturn in the global economy intensifies. Meanwhile, Finance Minister Jim Flaherty said that he saw ‘some small signs of little process’ during an interview with BNN television earlier this week, which spurred hopes for a recovery this year, but went onto say that he expects the downturn in the labor market to continue throughout the year. Mr. Flaherty went onto say that ‘we’ll do whatever we have to do to ease the way for Canada out of this recession and come out of it strongly,’ and the comments suggests that the government is considering to take further steps to jump-start the economy as growth and inflation falters.
Trading the given event risk clearly favors a bearish forecast for the Canadian dollar but nevertheless, an enhanced labor report could reinforce an improved outlook for the region, and would certainly set the stage for a long loonie trade. Therefore, if employment falls less than 30.0K with the jobless rate holding below 8.0%, we will look for a red, five-minute candle following the release to confirm a sell entry on two-lots of USD/CAD. Once these conditions are met, we will set our initial stop at the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be based on distraction, and in order to safeguard our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
Conversely, deteriorating trade conditions paired with fears of a deepening downturn are likely to weigh on businesses, and a dismal labor report would certainly favor a bearish trade for the given event risk. As a result, an in-line print or a drop of more than 50.0K in employment would lead us sell the Canadian dollar, and we will follow the same setup for a long dollar-loonie trade as the short position listed above, just in reverse.
Trading the given event risk clearly favors a bearish forecast for the Canadian dollar but nevertheless, an enhanced labor report could reinforce an improved outlook for the region, and would certainly set the stage for a long loonie trade. Therefore, if employment falls less than 30.0K with the jobless rate holding below 8.0%, we will look for a red, five-minute candle following the release to confirm a sell entry on two-lots of USD/CAD. Once these conditions are met, we will set our initial stop at the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be based on distraction, and in order to safeguard our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
Conversely, deteriorating trade conditions paired with fears of a deepening downturn are likely to weigh on businesses, and a dismal labor report would certainly favor a bearish trade for the given event risk. As a result, an in-line print or a drop of more than 50.0K in employment would lead us sell the Canadian dollar, and we will follow the same setup for a long dollar-loonie trade as the short position listed above, just in reverse.
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Tuesday, April 7, 2009
Managed 50K Account Review for Trading Day April 6, 2009
On April 6, 2009 our managed account gained 71 pips in a short USD/JPY trade which netted $27,871.13 for 50K accounts opened March 1, 2009. Bringing the month to date total to a gain of $44,474.31.
For more information on our managed forex accounts please visit www.onyxfinancial.net.
For more information on our managed forex accounts please visit www.onyxfinancial.net.
Onyx Financial Daily Outlook & Trade Ideas
EUR/USD – Back under pressure on Tuesday with the market now looking for an initial retest of the 100-Day SMA by 1.3165 with a break below to expose the key short-term trend lows by 1.3115. Intraday rallies should now be capped ahead of Tuesday’s daily lower high at 1.3420. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
USD/JPY – We continue to favor additional upside over the coming sessions with the market having finally taken out psychological barriers at 100.00, to expose the major 87.15 double bottom objective by 104.00. Only a close back under 99.35 delays. Thursday’s close above the 200-Day SMA (first time since September 2008) reaffirms bullish outlook. Next key topside resistance comes in by 101.70, the 61.8% fib retrace off of the major 110.70-87.15 move (Aug08-Jan09). Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
GBP/USD – Gains have stalled out on Monday after failing shy of key short-term resistance by 1.4990 from February 9. Monday’s high also coincides with the upper Bollinger, and the market could now be poised for a resumption of the broader downtrend by the loose bear channel top. Tuesday’s break below 1.4650 confirms and should accelerate declines. Only back above 1.4960 negates. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
USD/CHF – Setbacks continue to be very well supported by the 200-day SMA with Monday’s bullish outside day showing good follow through on Tuesday. From here we see risks for a resumption of gains back above 1.1500 and through the recent trend highs at 1.1550. Only back under 1.1165 negates outlook and gives reason for pause. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
USD/CAD –The market has been trading within a bull channel over the past several weeks with the latest dips supported ahead of channel support at 1.2190. Look for a medium-term higher low to carve out by 1.2190 ahead of a fresh upside extension back towards and through the key 2009 highs by 1.3065 from 9Mar. We expect any additional weakness to continue to be supported by the rising trend-line which currently resides by 1.2200. Back above 1.2455 should act as a catalyst for a resumption of the broader up-move. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
AUD/USD – The market has stalled out ahead of the 0.7270, 2009 highs with Friday’s bearish doji being followed by Monday’s and Tuesday’s negative price action. The RSI is now showing a negative divergence and we look today’s break back below 0.7060 to accelerate declines back towards 0.6770 over the coming days. Only back above 0.7230 negates. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
NZD/USD – Daily studies are finally starting to roll over as we had anticipated following the bearish price action. Indeed our short trade was triggered and we have trailed stops to cost to eliminate risk. There is plenty of room for additional setbacks over the coming days with next key support coming in by 0.5635. Look for intraday rallies to now be well capped ahead of 0.5850. Position: SHORT @0.5845 FOR A 0.5530 OBJECTIVE, REVISED STOP @0.5845.
USD/JPY – We continue to favor additional upside over the coming sessions with the market having finally taken out psychological barriers at 100.00, to expose the major 87.15 double bottom objective by 104.00. Only a close back under 99.35 delays. Thursday’s close above the 200-Day SMA (first time since September 2008) reaffirms bullish outlook. Next key topside resistance comes in by 101.70, the 61.8% fib retrace off of the major 110.70-87.15 move (Aug08-Jan09). Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
GBP/USD – Gains have stalled out on Monday after failing shy of key short-term resistance by 1.4990 from February 9. Monday’s high also coincides with the upper Bollinger, and the market could now be poised for a resumption of the broader downtrend by the loose bear channel top. Tuesday’s break below 1.4650 confirms and should accelerate declines. Only back above 1.4960 negates. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
USD/CHF – Setbacks continue to be very well supported by the 200-day SMA with Monday’s bullish outside day showing good follow through on Tuesday. From here we see risks for a resumption of gains back above 1.1500 and through the recent trend highs at 1.1550. Only back under 1.1165 negates outlook and gives reason for pause. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
USD/CAD –The market has been trading within a bull channel over the past several weeks with the latest dips supported ahead of channel support at 1.2190. Look for a medium-term higher low to carve out by 1.2190 ahead of a fresh upside extension back towards and through the key 2009 highs by 1.3065 from 9Mar. We expect any additional weakness to continue to be supported by the rising trend-line which currently resides by 1.2200. Back above 1.2455 should act as a catalyst for a resumption of the broader up-move. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
AUD/USD – The market has stalled out ahead of the 0.7270, 2009 highs with Friday’s bearish doji being followed by Monday’s and Tuesday’s negative price action. The RSI is now showing a negative divergence and we look today’s break back below 0.7060 to accelerate declines back towards 0.6770 over the coming days. Only back above 0.7230 negates. Strategy: SIDELINED; AWAIT CLEARER SIGNAL.
NZD/USD – Daily studies are finally starting to roll over as we had anticipated following the bearish price action. Indeed our short trade was triggered and we have trailed stops to cost to eliminate risk. There is plenty of room for additional setbacks over the coming days with next key support coming in by 0.5635. Look for intraday rallies to now be well capped ahead of 0.5850. Position: SHORT @0.5845 FOR A 0.5530 OBJECTIVE, REVISED STOP @0.5845.
Managed Account Trade Triggered EUR/AUD
Eur/Aud: (LONG TRADE TRIGGERED) The cross continues to trade with a heavy tone since breaking down from a multi-day consolidation in late March. Setbacks however have now extended back to a very well supported area, with the daily chart showing the cross now trading at the bottom of a longer-term range. With daily studies showing oversold, scope exists for yet another bounce out from current levels back into the middle of a very familiar range that has defined trade since October 2008. Our long has been triggered and is currently well out of the money. We will look to exit on the close if no upside is seen as per instruction.
Position: LONG @1.8655 FOR A 1.9450 OBJECTIVE, STOP @1.8455. Stops to be trailed to cost on a break back above 1.8800. If 1.8800 not broken, position to be closed out at NY close (5pm EDT) on Tuesday.
Position: LONG @1.8655 FOR A 1.9450 OBJECTIVE, STOP @1.8455. Stops to be trailed to cost on a break back above 1.8800. If 1.8800 not broken, position to be closed out at NY close (5pm EDT) on Tuesday.
Midday Snapshot & Analysis of Selected Rates
The FX market has been ignoring the continued weakness in US equity prices on Tuesday, with all currencies reversing overnight price action against the USD since the New York open. The Euro, Sterling and Swissy are all moderately bid heading into the London fix, while the Yen has begun to find some offers. This is in sharp contrast to an overnight session which saw significant broad based USD and Yen buying. Meanwhile Eur/Gbp has come under some intense pressure to break below key barriers by 0.9000 into the London fix. Downbeat comments from ECB Provopoulos, weaker Eurozone GDP and better than expected UK industrial production data have all contributed to the acceleration in cross related sales. The Australian Dollar has held up quite well today following the latest 25bp RBA rate cut, with a local article suggesting that the RBA is done, helping to bolster the commodity currency. The DJIA is the biggest equity loser on the day, down some 2.00%, while oil and gold diverge, with oil down some 2.50% and gold up nearly 1.50%
Monday, April 6, 2009
What To Expect In The Euro Session
UK Industrial Production is expected to have dropped -12.5% in the year to February, the largest decline since records began in 1976. The industrial sector employs over 18% of Britain’s labor force and produces the bulk of the country’s exports, making it both essential to a lasting recovery in economic growth and highly sensitive to the current slump in global demand. The outlook is likely to remain grim in the months ahead as the largest global recession since the Second World War continues to weigh on overseas sales, keeping the lid on economic growth. Indeed, GDP is seen shrinking -3.3% through 2009, the deepest contraction among the G7 nations according to forecasts from the International Monetary Fund. For their part, the Bank of England is expected to keep benchmark interest rates on hold at 0.50% but will almost certainly announce further quantitative easing measures to check the slide in output.
Moving to the continent, the final revision of the Euro Zone’s Gross Domestic Product is set to confirm that the currency bloc’s economy shed -1.5% through the fourth quarter of last year. Yesterday, February’s Producer Prices fell more than economists expected, showing wholesale inflation was shrinking at an annual pace of -1.8%, the most in a decade. Despite tumbling prices and deepening recession, the European Central Bank cut interest rates less than economists expected last week. In the press conference following the initial announcement, bank president Jean-Claude Trichet said rates had not reached “the lowest limit” and revealed that “the Governing Council intends to decide on further non-standard measures at our next monetary policy meeting”.
Moving to the continent, the final revision of the Euro Zone’s Gross Domestic Product is set to confirm that the currency bloc’s economy shed -1.5% through the fourth quarter of last year. Yesterday, February’s Producer Prices fell more than economists expected, showing wholesale inflation was shrinking at an annual pace of -1.8%, the most in a decade. Despite tumbling prices and deepening recession, the European Central Bank cut interest rates less than economists expected last week. In the press conference following the initial announcement, bank president Jean-Claude Trichet said rates had not reached “the lowest limit” and revealed that “the Governing Council intends to decide on further non-standard measures at our next monetary policy meeting”.
Asia Session Highlights
As expected, the Bank of Japan kept interest unchanged at 0.10%. Rather, policymakers said they will bolster current liquidity-boosting measures by expanding the range of assets acceptable as collateral for loans. As for the bank’s assessment of current economic conditions, traders were given a familiar mantra with the BOJ saying that the economy has deteriorated “significantly” and will continue to do so “for the time being”. Although the BOJ still expects the economy will begin to recover late into the 2009 fiscal year (Winter-Spring, 2010), the level of uncertainty about the forecast remains “high”. Further, members of the monetary policy body expressed concern about “downside risk of inflationary expectations”, alluding to the possibility of deflation. This could prove disastrous for the world’s second-largest economy as consumers and businesses perpetually put off spending and investment to wait for the best possible bargain, sinking the economy still deeper into recession.
The Reserve Bank of Australia surprised the markets, cutting benchmark interest rates 25 basis points to bring borrowing costs to 3.00%. Importantly, RBA Governor Glenn Stevens reiterated that the Australian economy is contracting less severely than that of its main trading partners and expressed confidence that while growth will likely continue to decline over the rest of the year, the “major change” in both monetary and fiscal policy will “provide significant support to domestic demand over the period ahead.” Most notably, Stevens conspicuously did not include any reference to revisiting the possibility of additional cuts in upcoming policy meetings, suggesting the central bank has reached the end of its easing cycle. The Australian Dollar initially stumbled as the announcement crossed the wires but quick rebounded to add 0.8% against its US counterpart as traders priced in the reduction in rate cut expectations.
The Reserve Bank of Australia surprised the markets, cutting benchmark interest rates 25 basis points to bring borrowing costs to 3.00%. Importantly, RBA Governor Glenn Stevens reiterated that the Australian economy is contracting less severely than that of its main trading partners and expressed confidence that while growth will likely continue to decline over the rest of the year, the “major change” in both monetary and fiscal policy will “provide significant support to domestic demand over the period ahead.” Most notably, Stevens conspicuously did not include any reference to revisiting the possibility of additional cuts in upcoming policy meetings, suggesting the central bank has reached the end of its easing cycle. The Australian Dollar initially stumbled as the announcement crossed the wires but quick rebounded to add 0.8% against its US counterpart as traders priced in the reduction in rate cut expectations.
Australian Dollar Rallies as Central Bank Signals End to Interest Rate Cuts
The Australian Dollar surged 0.8% against its US counterpart late into the overnight session despite a surprise 0.25% reduction in benchmark borrowing costs as the Reserve Bank of Australia hinted an end to further interest rate cuts for the time being. The Euro and the British Pound extended losses against the greenback as Asian stock markets followed Wall St lower.
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