skip to main |
skip to sidebar
There is no stopping the USD decline with currencies still very well bid against the buck even in the face of some equity declines on Wednesday. It appears as though the FX market is once again leading the way and only it will determine when the appropriate time is for a shift in the construct and direction of the markets. The Euro has easily held above the 1.5000 mark to suggest some more bullish continuation, with the single currency rallying to a fresh yearly high by 1.5060 in Asia. Meaningful highs are rarely made in Asian trade and as such, market participants can be sure to expect a retest and break of this level over the coming hours. More often than not, the pattern has been one in which the US session determines the high and lows.
There is no stopping the USD decline with currencies still very well bid against the buck even in the face of some equity declines on Wednesday. It appears as though the FX market is once again leading the way and only it will determine when the appropriate time is for a shift in the construct and direction of the markets. The Euro has easily held above the 1.5000 mark to suggest some more bullish continuation, with the single currency rallying to a fresh yearly high by 1.5060 in Asia. Meaningful highs are rarely made in Asian trade and as such, market participants can be sure to expect a retest and break of this level over the coming hours. More often than not, the pattern has been one in which the US session determines the high and lows.
The interest rate announcement tops the data docket, with economists calling for the Reserve Bank of New Zealand to hold rates at the record-low 2.5%. The markets seem to be in agreement, with a Credit Suisse index of priced-in expectations showing traders see no chance of a hike this time around. To that effect, all eyes will be focused on the statement accompanying the release, with investors looking to gauge whether the timetable for the withdrawal of monetary stimulus has been accelerated from the previously given “latter part of 2010” estimate after consumer prices unexpectedly surged in the third quarter.
The hawks may be in for a disappointment however considering policymakers will be wary of acting on rates to protect the still very fragile export sector. Indeed, both the central bank and government have been very vocal about the detrimental effects of a higher Kiwi dollar in driving away foreign demand. Overseas sales make up over 30% of the economy’s total output, so any policies that stand to hurt firms catering to foreign markets will likely stunt the fledgling economic recovery of recent months. Appropriately enough, September’s Trade Balance figures are set to be released less than two hours after the central bank announcement crosses the wires, with exports expected to match the 23-year record drop recorded in the previous month even as the overall deficit narrows on lackluster import demand.
In fact, the RBNZ may have already embarked on a somewhat covert tightening campaign aimed at checking inflationary pressure while minimizing the impact on the NZD exchange rate. The central bank “leaked” an announcement that it would end some of its emergency lending programs enacted amid the credit crunch in November, a fact that it did not officially confirm via an official news release until about a day later. This move will gradually slow the flow of liquidity into the economy, reducing the pace of money supply growth and acting against inflation. Policymakers’ approach to the announcement suggests they were consciously trying to avoid a snow-ball effect that would send the New Zealand Dollar steeply higher. It also hints that perhaps this approach to tightening will be seen as sufficient to stick with rates at current levels until the second half of next year as scheduled.
The Euro pushed to an intraday high of 1.4996 during the Asian trade and looks poised to test 1.5000 for psychological resistance however, the single-currency remains little changed on the day following the rebound in risk aversion and may continue to hold a narrow range going into the U.S. session. Meanwhile, Heri Guaino, French President Nicolas Sarkozy’s advisor, said that weakness in greenback may become “unbearable” as the U.S. government tries to “reduce its debt by repaying in a depreciated currency,” and went onto say that European policy makers may have to “weaken the euro” to balance the risks for the economy.
Nevertheless, the economic docket showed German producer prices fell 0.5% in September amid expectations for a 0.1% decline, with the annualized rate tumbling 7.6% from the previous year led by cheaper energy prices. Moreover, construction outputs slipped 0.4% in August to mark the fourth consecutive monthly decline, while building activity weakened 11.3% from the previous year, and conditions may get worse throughout the second-half of the year as policy makers anticipate economic activity to remain subdued going into 2010. At the same time, European Central Bank President reiterated “excessive volatility and disorganized developments in the exchange market was bad for economic development,” and reaffirmed “a shared interest” for a strong U.S. dollar policy to help stabilize the global financial system. The comments suggests policy makers are becoming weary of the appreciation in the exchange rate as it hampers the prospects for a sustainable recovery, and the Governing Council may keep rates on hold going into the following year in an effort to keep the economy afloat.
The British pound pared the overnight decline after finding intraday support ahead of the 100-Day SMA at 1.6351 and remains little change from the previous day to hold above 1.6400. Meanwhile, public-sector borrowing in the U.K. increased to 14.8B in September from a revised reading of 14.7B in the previous month to mark the biggest deficit since recordkeeping began in 1993, with the public sector net cash requirement rising to a 25-year high of 19.4B during the same period, and conditions are likely to get worse as the HM Treasury forecasts public borrowing to reach 12.4% of GDP in the year through March 2010. At the same time, the M4 money supply increasing 0.7% during the same period amid expectations for a 0.5% rise, while the annual rate slipped to 11.3% from the previous year after growing 12.1% in August, and the data suggests that the Bank of England’s asset purchase program is having a positive effect of the overall economy as policy makers take unprecedented steps to stem the downside risks for growth and inflation.
No change from yesterday - “The USDCHF has dropped to a new low and is probably completing wave v of C (just as EURUSD is in the process of doing). 1.0037, the 100% extension of 1.2303-1.0367, is a potential reversal point.”
Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Monday mornings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates. He is the author of Sentiment in the Forex Market. Follow his intraday market commentary at DailyFX Forex Stream.
No change from yesterday - “The USDCHF has dropped to a new low and is probably completing wave v of C (just as EURUSD is in the process of doing). 1.0037, the 100% extension of 1.2303-1.0367, is a potential reversal point.”
Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Monday mornings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates. He is the author of Sentiment in the Forex Market. Follow his intraday market commentary at DailyFX Forex Stream.
No change from yesterday - “The USDCHF has dropped to a new low and is probably completing wave v of C (just as EURUSD is in the process of doing). 1.0037, the 100% extension of 1.2303-1.0367, is a potential reversal point.”
Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Monday mornings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates. He is the author of Sentiment in the Forex Market. Follow his intraday market commentary at DailyFX Forex Stream.
The GBPJPY may be close to completing wave i of larger 5 down. Trading through 144.60 would confirm that wave i is complete and project a move towards the 149.00-150.00 area (and maybe higher). Until a rally through 144.60, the pair remains vulnerable to further losses.
The GBPJPY may be close to completing wave i of larger 5 down. Trading through 144.60 would confirm that wave i is complete and project a move towards the 149.00-150.00 area (and maybe higher). Until a rally through 144.60, the pair remains vulnerable to further losses.
The GBPJPY may be close to completing wave i of larger 5 down. Trading through 144.60 would confirm that wave i is complete and project a move towards the 149.00-150.00 area (and maybe higher). Until a rally through 144.60, the pair remains vulnerable to further losses.
The GBPJPY may be close to completing wave i of larger 5 down. Trading through 144.60 would confirm that wave i is complete and project a move towards the 149.00-150.00 area (and maybe higher). Until a rally through 144.60, the pair remains vulnerable to further losses.
“There is little to say about the EURCHF technically and there will not be until the pair breaks from the triangle. The fight between bulls and bears wages on in a triangle that has been underway since October. Triangles are typically continuation patterns, so a downside break seems more probable. Still, forecasting is an exercise in probabilities rather than certainties so jump the gun at your own risk. Pushing through either the top of bottom line triangle line would present a breakout opportunity.” The triangle count shown above is bearish but a bullish outcome is just as probable. Wave a would be A and wave B would be a triangle.
“There is little to say about the EURCHF technically and there will not be until the pair breaks from the triangle. The fight between bulls and bears wages on in a triangle that has been underway since October. Triangles are typically continuation patterns, so a downside break seems more probable. Still, forecasting is an exercise in probabilities rather than certainties so jump the gun at your own risk. Pushing through either the top of bottom line triangle line would present a breakout opportunity.” The triangle count shown above is bearish but a bullish outcome is just as probable. Wave a would be A and wave B would be a triangle.
The Canadian dollar benefited from another day of increased risk appetite to gain versus most of the 16 main traded currencies and trade near parity with its U.S. counterpart.
Crude oil is providing support for the Canadian dollar to become one of the best trading currencies during the this October as the main Canadian export is rallying, helping the loonie towards parity versus the U.S. dollar, which, according to some analysts, is just a matter of time to happen.
USD/CAD traded at 1.0339 as of 19:19 GMT in a rather neutral level in the intraday, but touched 1.0267 hours earlier, the highest level in 14 months.
If you want to comment on the Canadian dollar’s recent action or have any questions regarding this currency, please, feel free to reply below.
This Tuesday, a report posted in New Zealand surprised economists’ forecasts as retail sales in the South Pacific country came with better-than-expected growth, adding optimism to the already attractive kiwi, one of the best performing currencies in foreign-exchange markets in 2009.
Fed funds futures are currently pricing in a 2.0% chance of a rate hike by the end of the year which is slightly higher from a month ago. Interest rate expectations have started to rise after they reached as low as zero following the FOMC’s rate decision. Nevertheless, policy makers will most likely refrain from raising rates until the economy starts to see job growth. Therefore, this week’s U.S. employment data will go a long way toward influencing future policy decisions and their impact of the EURUSD’s price action. We have already seen the ADP private jobs report disappoint with a expected job loss of 254K versus 200K. A similar result from Friday’s NFP report could significantly sink yield expectations.
Equity markets stumbled early today on the back of a disappointing Chicago PMI reading which showed that activity in the region unexpectedly contracted. The 46.1 reading missed early estimates of 52.0 and raised questions about future domestic growth. Markets were also unnerved by the larger than expected job loss in the ADP private jobs report which is an early indicator for Friday’s NFP report. However, markets have erased earlier losses which could be a bullish sign considering the weak data. Yet, we are starting to see a developing bearish channel which could be a sign of future weakness which could weigh on the EUR/USD.
The EUR/USD continues to see risk sentiment have the greatest influence on price action as movement in the DJIA is explaining 41% of overall direction. However, U.S. interest rate expectations are starting to increase in importance as they have become a weighing factor with a -0.24 correlation. Many expect that the Fed will start tightening sometime next year and as we get closer to that possibility traders may begin to hedge their bets developing bullish dollar sentiment. Meanwhile, the ECB has clearly signaled that it will also wait until 2010 before considering tightening which has made yield expectations for the region a non-factor in recent price action.
Overnight index swaps are pricing in 87 bps of rate hikes for the ECB over the next twelve months which is near the highest levels since June, 2008. That is when we saw surging oil prices push inflation to uncomfortable levels. Currently we are not seeing consumer prices anywhere near those levels. In fact today’s Euro-Zone CPI-estimate unexpectedly fell to -0.3% from -0.2% which is well below the central bank’s 2% target. Therefore, policy makers will remain reluctant to initiate a tightening policy unless there is a viable threat of inflation. Until then we may see interest rate expectations have little impact on overall price action for the Euro. The producer price report for August is due out on Friday and is expected to show a 0.4% gain. If businesses are able to pass on their increasing costs to consumers than we may start to see the outlook for monetary policy change and grow in importance.
Staying short last week in my AUD/USD position wasn't a prudent move as an unexpected rate hike by the RBA sent the pair soaring. At least I moved up my stop as I was cautious that the stronger Australian economy could start generating support for the pair. It still looks overbought at these levels and we may see a retrace but given the prevailing risk appetite more upside could remain.
Currently, I am in a short USD/CAD trade from this morning’s Canadian Jobs report trade webinar that I entered at 1.04714, I still like the position despite the disappointing trade data, as the breakdown of the employment report painted a bullish picture for the Canadian economy. A rise of 30.6K jobs with jump in the goods producing sectors and over 90K in fulltime hires underlines the optimism of companies. In retrospect, with the dollar finding some support from Fed Chairman Bernanke’s comments a long CADJPY trade may be more prudent. Regardless the break below channel support exposes 1.0299-9/25/08 low.
Both the commodity bloc and the Japanese yen have been big movers these past few weeks; and the efforts to develop new trends with probing breakouts between the two seems to be underway. In the past 24 hours, both AUDJPY and CADJPY have marked meaningful breaks above resistance on well-worn congestion patterns. And, while there are follow boundaries ahead (CADJPY in a channel top and AUDJPY in a swing high from last month), there is renewed momentum that could ultimately develop this trend or allow for a volatile reversal rather than turning once again to confining chop. Jumping in on these pairs now would be dangerous because it is unclear whether we can sustain these new trends. Instead, we have an opportunity with NZDJPY - the commodity-yen cross that hasn't produced its own break.
This typically volatile pair is still working its way deeper into a terminal wedge. Resistance is defined by the long-term 50 percent Fib retracement of the February 2008 to February 2009 bear wave and September swing high around 66.25/35. Pressure is coming from support founded in the rising trend of lows beginning in late February and now falling around 64.25. On its own, this pair would eventually produce a break; but its Aussie and loonie peers can offer the impetus to catalyze the ultimate move - and more importantly, it can project the move for us. I will look to AUDJPY and CADJPY to develop a true trend (bullish or bearish) and look for NZDJPY to fall in line. A confirmed move above 66.25 or below 63 will be levels for entry.
The ECB’s rate decision is actually scheduled for release some 45 minutes after its English counterpart’s (at 11:45 GMT); but it has the more drawn out impact on the markets. The initial announcement has not held any surprises since May when the group last lowered the benchmark lending rate to its currency 1.00 percent. However, the event doesn’t end with a hike / no hike decision. Central bank President Jean Claude Trichet will once again hold his public address 45 minutes after the initial announcement and answer reporters’ questions.
Right off the bat, economists are unanimous in their expectations for rates to be held at its current record low level. Markets expect much the same with Credit Suisse overnight index swaps pricing in no probability of a change. The market will instead have to get its actionable content from the statement and Q&A to follow.
In recent weeks and months, Trichet has been adamant in his warnings that the economic recovery is the primary concern with monetary policy and the target rate will likely be kept at low levels until next year. For speculators that are used to the same warning from across the globe, the real interest is in the timing as to when rates will once again be lifted and how aggressively policy will be tightened from there. Actions speak louder than words and calling an end to the unlimited fund auctions to banks recently is a clear first step at reining in stimulus. There are a few more steps before pre-emptive hikes can be considered; but the positive growth measured in German and France through the second quarter along with Australia’s move to a hawkish stance put the ECB under the magnifying glass as they are expected to be the next likely candidate to take up the inevitable.
Interest rate announcements from the European Central Bank and the Bank of England headline the economic calendar in European hours. While both monetary authorities are expected to keep policies unchanged, the UK announcement presents a greater potential for volatility versus its continental counterpart.
BOE Governor Mervyn King has done everything in his power to project a dovish bias since the last rate decision, telling the House of Commons Treasury Committee that policymakers are considering cutting the interest rate they pay on bank deposits to encourage lending and talking down the currency with assertions rebalancing the UK economy was “very necessary [and] the fall in the exchange rate that we have seen will be helpful to that process” in an interview with The Journal. We had speculated ahead of the September 10 rate announcement that the bank was preparing the markets for a change in policy after the asset-buying scheme largely failed to affect lending to the real economy. Indeed, although King has said that the BOE was “beginning to see its impact on the supply of broad money,” the M4 measure of money stock grew at an annual pace of just 12.6% in August, the slowest in a year, while central bank’s own data showed net lending shrank for the first time in at least 16 years in July. While a policy shift had not materialized at that point, the BOE has not let up on hinting that more, not less, monetary easing is ahead despite the recent uptick in leading economic indicators, creating the distinct possibility for a dovish surprise this time around.
Turning the ECB, traders are likely to pay little attention to the actual interest rate decision. In fact, the ECB benchmark (officially unchanged at 1% since May) has not been representative of actual lending rates for some time, with the average cost borrowing Euros overnight oscillating between 0.5 and 0.3 percent since June. Rather, traders will focus on bank President Jean-Claude Trichet’s post-announcement press conference. Key economic data turned in mixed results in recent weeks but the bottom line looks far from encouraging: consumer prices fell more than expected in September, lending to the private sector grew at the slowest pace on record in August, and updated GDP figures revealed that the economy depended more on government spending while consumption and investment shrank at a faster pace than originally expected in the second quarter. While Trichet and company have consistently signaled that rates will remain unchanged well into next year, the steady upward drift in traders’ 1-year yield expectations over the past two months suggests the markets will be disappointed if a hawkish streak does not begin to show itself in the near term, weighing on the Euro.
Australia unexpectedly gained 40,600 jobs in September, sending the Unemployment Rate lower to 5.7% from 5.8% in the previous month, the first drop in five months. Even more encouraging, most of the gains came from a 35,400 increase in full-time positions. The Australian Dollar surged as the data crossed the wires with traders taking the outcome as validation of RBA Governor Glenn Stevens’ promise to extend rate hikes after the central bank unexpectedly raised borrowing costs earlier this week, pushing to test above the 0.90 level against its US counterpart for the first time in over a year. Traders are now pricing in a 99% probability that the RBA will raise rates by another 0.25% next month and at least 1.75% over the coming year.
Looking ahead, it is important to note that fiscal stimulus has played a key role in the labor market’s resilience after the government spent A$20 billion in cash handouts to consumers and committed A$22 billion to new infrastructure projects. Indeed, a report from the Organization for Economic Cooperation and Development (OECD) has said that Australia’s unemployment rate would be as much as 1.9% higher next year without the government’s intervention, equating to about 150-200K more in job losses. While Treasurer Wayne Swan has promised that fiscal stimulus will remain in place despite the central bank’s move to reverse expansionary policy, opposition parties in the government have strongly argued that spending needs to be wound down to reduce the public deficit and are now launching an inquiry into the government’s policies, with results due at the end of this month. The ruling Labor party does not have a voting majority in Parliament, and it remains to be seen what happens to Australia’s employment situation if the opposition successfully cuts off the flow of public funds to the economy.
In Japan, the Current Account surplus narrowed for the third consecutive month, printing at 1171.2 billion yen in August versus 1265.6 billion yen in the previous month. Exports fell -7%, the most since January, outpacing a -4.5% decline imports. More of the same is likely in the months ahead as the Yen appreciates, making Japanese goods increasingly expensive for foreign buyers. Indeed, last week’s Tankan survey of large manufacturers (who primarily cater to the overseas buyers) revealed firms plan to slash capital investment at the fastest rate in over a decade on expectations that sales will fall -10.5% through the 2009 fiscal year (12 months ending April 2010), more than doubling the drop in FY2008. The currency looks set to extend gains after a trade-weighted index of its value broke higher out of a range that had contained prices since early March late last month.
