Daily Market Analysis by HotForex

[HotForex]

TODAY’S CURRENCY MOVERS

EURUSD, Daily

EURUSD is trading near the upper weekly Bollinger Bands (20) after peaking higher last week. The move reached a high of 1.1714 and was reversed at a pivotal low from November 2005. This rejection brought the pair down to a level that resisted price moved higher in the beginning of August. This level also coincides with a rising trendline suggesting there is currently more potential in the upside while the immediate downside potential is limited. This view is supported by the Stochastics Oscillator (7,3,3) being oversold and starting to creep higher. The nearest support and resistance levels are at 1.1156 and 1.1369. The 1369 resistance is a daily high from Aug 27th and a pivotal candle low.

The ECB is widely expected to keep policy unchanged, leaving the focus on the updated set of staff projections and the press conference. With growth forecasts overshadowed by concerns about China and lower than expected oil prices keeping headline inflation down, both growth and CPI forecasts are likely to be scaled back. In the base scenario the central bank is pretty much expected to remain on hold into next year, and Draghi will highlight the heightened risks to growth and highlight that the ECB stands ready to act should these risks materialise. Lower than expected inflation meanwhile is almost entirely due to lower oil prices and core inflation is rising, in tandem with money supply growth and a stabilisation in loan growth. If Draghi follows Constancio’s argument that the central bank needs to see through short term volatility caused by energy prices markets are likely to register disappointment, especially as some will be betting on a surprise move already today. So the EUR may rise again.

The IMF is warning the Fed not to tighten policy in a note to policymakers ahead of the weekend’s G20 gathering in Ankara. The Fund argued that the Fed should “remain data-dependent” and not take hasty action “with little evidence of meaningful wage and price pressures so far.” The IMF also calls on the ECB to extend QE, and for the BoJ to stand ready to do the same with its QQE program. The Fund is concerned about low inflation in major economies, arguing that “monetary policy must stay accommodative to prevent real interest rates from rising prematurely,” and also stressed that risks to the global economy have risen.

As central bankers ponder their next policy moves, Bank of International Settlements and IMF take very different views of persistent monetary policy accommodation and the fact that markets continue to rely on central banks. The IMF once again called on the Fed to refrain from hikes and the ECB to expand QE, while the BIS in its latest annual report called on policy makers to shift the view from short term stimulus to longer term growth measures to boost sustainable growth. Even ECB vice president Constancio said recently that monetary policy can only support not create growth and we tend to agree. Furthermore, as the BIS highlighted “signs of growing financial imbalances around the globe highlight the risks of accommodative monetary policies”. Adverse reactions even to the possibility of not so much monetary tightening but a reduction of the still very substantial degree of monetary accommodation highlight the challenges central banks will face when trying to return to more normal conditions. In this situation additional easing may only exacerbate the problem especially as low inflation is more than ever a function of oil prices, rather than the sign of broad based deflation risks, at least for Europe.

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[HotForex]

TODAY’S CURRENCY MOVERS

EURUSD, Daily

Draghi’s suggestion that ECB could extend the QE program dropped EURUSD below the rising trendline and the 1.1154 support. Price found support from a pivotal high at 1.1093 which coincides with 50 day SMA. Indications as a whole are mixed as the nearest support is relatively near at a daily pivot candle (1.1018 – 1.1093). This range sent the market strongly higher on August 19th which suggests that the level now holds some psychological value for the euro bulls but at the same time the sideways move and a new pivotal low at 1.1154 are very near. It has already proven to be a challenge for those with long bias today. The US Non-Farm Payroll figures are released today at 12:30 GMT. In case we see strong deviation from analyst expectations price is likely to fluctuate beyond the nearest resistance levels (1.1018 and 1.1154). Today’s NFP number is the last one before the next FOMC meeting and is seen as an important indicator for the Fed when it considers the timing of their first rate hike. Other support and resistance levels: 1.0932 and 1.1334.

German July manufacturing orders dropped 1.4% m/m, a much weaker than expected number. At the same time, June was revised down to 1.8% m/m from 2.0% m/m reported initially and the annual rate came in at -0.6%, versus 7.0% y/y in June. Annual rates over the summer can be volatile, due to the different timing of school holidays throughout the states, but still, the fall into negative territory highlights that while growth seems to have held up over the summer, downside risks to the economy have increased. The data will further fuel rate cut hopes and backs to the renewed jump in Bund futures at the start of the session.

ECB Increases Room to Maneuver: As expected, the ECB left monetary policy unchanged at the August council meeting. But Draghi was tricky, boosting bond as well as stock markets and bringing the EUR down with a technical tweak to the issue limits of QE purchases. In itself that doesn’t change the policy stance, but rather ensures that the central bank doesn’t run into supply constraints in its attempt to see through the current program.

US Atlanta Fed’s Q3 GDPNow was revised up to 1.5% from 1.3% previously following personal consumption and auto sales updates. According to the regional Fed: “The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.5 percent on September 3, up from 1.3 percent on September 1. The nowcast for third-quarter real personal consumption expenditures growth ticked up from 2.6 percent to 2.7 percent following yesterday afternoon’s release on August motor vehicle sales from the U.S. Bureau of Economic Analysis.”

US ISM non-manufacturing index dipped to 59.0 in August after exploding to 60.3 in July (which was the highest print since August 2005). It’s still the 3rd highest print on record however, though declines were broad-based. The business activity index slipped to 63.9 from 64.9. However, the employment index dropped to 56.0 from 59.6 previously. New orders fell to 63.4 from 63.8. New export orders dropped to 52.0 versus 56.5. Prices paid declined to 50.8 from 53.7.

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[HotForex]

S&P 500 UPDATE

S&P 500, Weekly

As the US and Canada are celebrating the Labour day the markets are likely to be subdued today. We will take this opportunity to visit the US stock market as it has had strong moves since my last report on stock indices. I suggested in my previous report August 12th (Click here to read) that S&P 500 index future (ES) will move lower after making lower highs and, that it would be the time to enter the short side of the market by selling rallies.

Two weeks ago ES found support at a weekly pivotal low from October last year and rallied strongly after printing a low of 1831. This suggests to me that the price volatility will settle down for the near term. In other words, I don’t believe ES will move below 1813 but that it will fluctuate between it and 2054 resistance over the coming week. MFI and RSI are oversold which hasn’t happened since October 2014. This supports my view that market was over stretched to the downside at 1831. Also, price has moved outside the regression channel and is therefore very much in line with my predictions on May 7th: stocks are in a topping phase.

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[HotForex]

TODAY’S CURRENCY MOVERS

EURUSD, Daily

In Friday’s report we identified 1.1093 – 1.1154 as a likely range to contain EURUSD action after the NFP report. Apart from a spike to the upside trading was maintained well within the range. The low for the day was 1.1090 while the high printed at 1.1189 and the close inside the range at 1.1149. As a result the last week’s candle turned into a narrow range bar that signals hesitation. In relation to daily Bollinger Bands (20) price is firmly in the mid-range and it is therefore challenging to estimate the future moves. Today’s euro zone GDP release is out at 09:00 GMT. The number is expected to be a confirmation of the preliminary release. EURUSD is finding some support from 1.1154 – 1.1170 range but the bias is on the downside. Next important support levels are at 1.0930 and 1.1018.

ECB’s Noyer says markets are well prepared for Fed hike. The Bank of France Governor said the “Fed’s communication has been done well and in detail, adding that an increase in the federal funds rate is inevitable and the markets are well prepared. It is not the timing that matters. Draghi’s dovish comments last week were clearly also designed to remind markets that Europe is in a different situation and that a hike in the U.S. won’t mean tighter policies in Europe, which should also help to limit upward pressure on the EUR if rate hike expectations in the U.S. are being pushed out.

ECB’s Weidmann: Direct impact of China equity slump limited. The Bundesbank President said at the sidelines of the G20 meeting that the direct impact of the stock correction in China and that the Bundesbank sees no reason to change its growth forecast for Germany. Still, he stressed heightened uncertainty about the outlook and said risks have shifted, while at the same time repeating once again that monetary policy cannot solve all problems. This seems to be the general tenor of ECB comments at the moments, with officials trying to dampen market reliance on central bank intervention to fix the economic outlook, although words alone won’t change that.

Copper and other metals are up after Glencore announced output cuts at two of its copper mines, which will cut supply by about 400 thousand tonnes. Copper prices are now up by 1.7% on the day. Oversupply has been a big issue in the copper market, similar to iron ore, crude and many other raw materials. Glencore’s decision comes after data last week showed Chinese manufacturing PMI dove to a three-year low in August. China is the world’s biggest consumer of copper, and many other commodities. Copper prices hit cycle lows on Aug-24, during the recent height of the recent Chinese stock market panic, but have since rebounded by 5.5%.

German labour growth accelerates sharply. Latest data show total labour costs up 0.9% q/q in Q2, bringing the annual growth rate to a whopping 3.1% y/y, from 2.8% y/y in the previous quarter and versus just 0.7% at the start of 2014. Gross wages and salaries rose 3.4% y/y in Q2. The tight labour market is boosting wage demands and settlements and with inflation at very low levels, real disposable income is picking up and supporting private consumption, but also marked increases in property prices, especially in the urban hot spots. Amid sluggish productivity growth, the increases also look unsustainable and will undermine competitiveness and are likely to push up unemployment in the medium term, with the decline in jobless numbers already starting to peter out.

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[HotForex]

TODAY’S CURRENCY MOVERS

EURUSD, Daily

The 1.1214 resistance worked again yesterday and turned EURUSD down after the pair rallied from the support area identified in yesterday’s report. The pair keeps on moving sideways between a pivotal support at 1.1085 – 1.1150 and resistance at 1.1214. The pair also seems to honour 50 period SMA in the 4h timeframe as the slightly descending moving average has been limiting EURUSD advances lately. Today’s candle has potential to be a decisive one as it will create another lower high should it close down. There are two lower lows already and should today’s bar close below previous candle low another lower high will be created. Price has created lower highs in intraday charts, which suggests that the pair should move further into the aforementioned pivotal support. Apart from this pivotal support area support and resistance levels are at 1.0930, 1.1018 and 1.1214.

ECB’s Reinesch: Loose Monetary Policy support structural reforms. The governor of Luxembourg’s central bank said the “current accommodative monetary policy” provides a “window of opportunity” for structural reform. He stressed that “favourable financing conditions will offset possible short-term adjustment costs and will bring forward the longer-term benefits of reform”. According to Reinesch these “could focus on simplifying the administrative burden involved in creating a new firm or in growing a firm beyond arbitrary thresholds which trigger increases in compliance costs.” The ECB has been urging enhanced structural reforms for a while now, but in our view the risk is that without market pressure, governments will continue to shy away from any measures that could risk votes.

According to Eurostat the Seasonally adjusted GDP rose by 0.4% in both the euro area (EA19) and the EU28 during the second quarter of 2015, compared with the previous quarter, according to a second estimate published by Eurostat, the statistical office of the European Union. In the first quarter of 2015, GDP grew by 0.5% in both areas. Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.5% in the euro area and by 1.9% in the EU28 in the second quarter of 2015, after +1.2% and +1.7% respectively in the previous quarter. During the second quarter of 2015, GDP in the United States increased by 0.9% compared with the previous quarter (after +0.2% in the first quarter of 2015). Compared with the same quarter of the previous year, GDP grew by 2.7% (after +2.9% in the previous quarter).

The US consumer credit expanded 6.7% in July. It is a sign of confidence most likely propelled by low fuel prices and relatively steady job market. Outstanding consumer credit, a reflection of nonmortgage debt, rose $19.1 billion or at a 6.7% annual rate in July, the Federal Reserve said Tuesday. Consumer credit has been trending higher. It has increased each month for nearly four years. July credit growth was roughly in line with economists’ expectations. They had predicted a $19.5 billion increase. Revolving credit, mostly credit cards, rose at a 5.7% annual rate. In June it climbed at an annual rate of 10%. Non-revolving credit, made up largely of auto and student loans, increased at a 7% annual rate, compared with 9.4% in June. Almost 70% of US GDP growth comes from consumer spending and steady growth in consumer credit therefore is a positive indication for the economic growth.

The US Labor Market Conditions Index (LMCI) rose by 2.1 points in August. This was the largest monthly improvement in US labor markets over the last six months. There were also revisions for previous months’ readings 2015 were revised up by a net 2.3 points in yesterday’s release. This measure contracted by 370 points from January 2008 to June 2009 but now it has made up about 90% of the 2008-09 deterioration.

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[HotForex]

AUDUSD CREATING A SHOOTING STAR AT RESISTANCE?

AUDUSD, Daily

AUDUSD rallied on the back of positive developments in the price of copper and Chinese stock market yesterday. Today the pair hit a resistance level at 0.7045 and after a brief move above the level the pair failed to maintain the gains and rolled over. The 0.7045 level supported price on August 24th and created a weekly low that was later on penetrated. Stochastics is trying to move higher from oversold levels but in a downtrend such moves are typical and don’t provide the same value as in a sideways range. Oscillators tend to fluctuate near oversold levels when markets are trending lower.

The fact that 2 sd regression channel high coincides with today’s high suggests that this level is a potential turning point for AUDUSD. The level also coincides roughly with a 23.6% Fibonacci level at .4029. The next support level is at the recent low (0.6900) while weekly chart suggests that the pair has further to fall and should eventually hit a support level at 0.6532.

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[garena]

Can you tell me what software did you use to analysis the pair?

 

[HotForex]

TODAY’S CURRENCY MOVERS

EURUSD, Daily

Yesterday’s slight upward bias accelerated a bit during the New York session but the pair has not been move beyond the 1.1208 – 1.1332 area which I suggested will limit the upside. Currently EURUSD is trading near a pivotal resistance at 1.1320 and has reacted lower from just below the resistance level. After edging higher for a few days the pair is now taking a breather and moving sideways. Significant daily support and resistance levels are: 1.1214 and 1.1334. Intraday support and resistance levels are at 1.1244 and 1.1320.

ECB’s Coere: Growth too weak to boost jobs. The Executive board member said ECB bond purchases will continue as long as necessary, as growth remains too weak to create sufficient jobs. In the text of a speech published on the ECB website, Coeure said France still has some way to go on growth and that he sees “room for manoeuvre” on Greece once trust is restored.

Italian refinancing costs fall. Italy sold EUR 4 bln of 2022 bonds with a coupon of 1.45% at an average yield of 1.37%, down from 1.60% at the previous auction on July 13. It also sold EUR 1.5 bln of 2046 bonds with a coupon of 3.25% at an average yield of 2.96%, down from 3.24% in July. Finally EUR 2.25 bln of 2018 bonds with a coupon of 0.25% were sold at an average yield of 0.24%.

The BoE left policy unchanged as widely expected and the minutes, released at the same time, showed an 8-1 majority in favour of steady policy, with McCafferty continuing his dissent in favour of a rate hike. However, while Sterling and yields spiked in the wake of the initial announcement, indicating lingering hopes for a more dovish statement and a reversal to a unanimous vote, yields quickly headed south again, as the statement indicated that the tightening bias is being eroded by rising concerns about the global growth outlook. So while the tightening bias remains intact for now, the BoE, is effectively taking a wait and see stance. Expectations of a dovish BoE statement were based on mixed confidence data and rising concerns about the global growth outlook. The BoE’s minutes also noted the dip in the Markit/CIPS composite PMI for August to the lowest level since May 2013. However, while bank staff lowered their estimate of Q3 GDP growth to 0.6% from 0.7%, the minutes noted that “the composite expectations index from the Markit/CIPS surveys had been steady, retail sales indicators had remained solid and consumer confidence had risen a little in August from already high levels”. In addition “the RICS survey had suggested a supportive balance of demand versus supply, and mortgage approvals in July had been a little stronger than expected”.

US reports revealed a disappointing round of July wholesale trade figures yesterday that trimmed our Q2 GDP growth estimate back to an unrevised 3.7%, though we still assume 3.0% GDP growth in Q3. The August trade price report revealed huge export price declines, with big drops for both the commodity and core export and import aggregates that were reminiscent of the plunge back in January in the face of a dollar pop, oil price declines, and a weak global economy. As such, we see little potential for improvement in the monthly trade deficits despite lower oil prices given weak export valuations. We did see a welcome 6k initial claims drop to a lean 275k, though we expect a restrained 205k September nonfarm payroll rise as the inventory overhang and factory sector restraint continues to put pressure on the economy.

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[HotForex]

Economic Week Ahead

Main Macro Events This Week

• United States: Consumer credit is expected to rise $17.0 bln in October (today), fluttering back down to earth from its explosion to a record $28.9 bln in September. Yellen’s favorite JOLTS job openings for October are due (Tuesday). The MBA mortgage report and EIA inventories are on tap (Wednesday) along with wholesale sales expected to rise 0.5% in October (median 0.3%) vs 0.5% and inventories seen -0.1%. Import prices will remain soft thanks in large part to oil and are forecast to sink 0.7% in November (Thursday), while export prices may falter 0.3%. In addition, initial jobless claims are set to ease 1k to 268k, while the Treasury budget may narrow to -$67.0 bln in November from -$136.5 bln. While we forecast a 0.4% rise in November retail sales (Friday), and 0.3% ex-autos, the tragic events in Paris may have slowed some mall traffic over the Thanksgiving break according to informed sources. PPI is set to rise just 0.1% in November, both headline and core. Preliminary Michigan sentiment may rise to 91.8 in December from 91.3 final in November. Business inventories are seen unchanged.

• Canada: a narrow batch of economic data during the week, with only housing releases and capacity utilization on the docket. Capacity utilization (Thursday) is expected to improve to 82.0% in Q3 from 81.3% in Q2 as growth returned in Q3 after the contraction in the economy during Q1 and Q2. Housing starts are expected to firm slightly to a 200.0k unit annual growth rate in November from the 198.1k clip in October, as robust growth in some regions (Vancouver, Toronto) more than offsets sluggishness in regions dependent on the resource extraction industries. Housing permits (Tuesday) are seen dipping 1.0% in October after the 6.7% tumble in September and 3.6% pull-back in August.

• Europe: The highlight is German Industrial Production data on (Tuesday), which after the stronger than expected rebound in manufacturing orders is expected to rise 1.5% m/m (med 0.8%), after falling 1.1% y/y in September. The final reading of Eurozone Q3 GDP (Tuesday), should confirm growth rates of 0.3% q/q and 1.6% y/y, with the breakdown expected to show that growth remains driven by consumption and domestic demand. French HICP is seen unchanged at 0.2% y/y (med same), but with overall EMU numbers already out, is unlikely to have much impact. The same holds for final German HICP, which is expected to be confirmed at 0.3% y/y, with the final Italian reading seen confirmed at 0.1% y/y. The Eurozone also has German trade numbers as well as French and Italian production numbers. Supply comes from Germany, which sells 2-year Schatz notes Wednesday. Spain and Italy sell bills. There are a number of ECB speakers, but with the December policy meeting out of the way, there is unlikely to be anything radically new.

• United Kingdom: The UK calendar is highlighted the December BoE policy meeting (Thursday), the latest BRC retail sales report and industrial production data for October (both Tuesday), and trade data (Thursday). Unlike the ECB last week, no drama is likely to come from the BoE meeting this week, assuming the FT doesn’t jump the gun again ahead of the decision, where a no-change announcement is widely anticipated to leave the repo rate at 0.5% and the QE total at GBP 375 bln. The minutes are likely to reveal a 8-1 vote, with McCafferty maintaining his dissent in favour of a 25 bp hike. As for data, the BRC is expected to rise 0.4% (median 0.5%), rebounding after dipping 0.2% m/m in October, aided by the UK’s version of Black Friday sales. Industrial production is expected at +0.1% m/m and +1.2% y/y (mediums same). Trade numbers are expected to show a mercantile deficit of GBP 9.6 bln, near to the average seen this year.

• China: November trade data (Tuesday) is expected to reveal a $63.0 bln surplus, wider than the $61.6 bln in October. Export data will be closely eyed — they have contracted on an annual basis in 8 of the last 10 month. November CPI and PPI (Wednesday) are seen unchanged at 1.3% y/y for the former, and faling to a -6.0% y/y pace from 5.9% for the latter. November loan growth (Thursday) likely remained steady at 15.4% y/y, while November new yuan loans (due later in the week) are penciled in at CNY 700 bln, up from 513.6 bln in October. November industrial production and retail sales are scheduled for release next (Saturday), and are forecast unchanged at 5.6$ y/y for the former, and 10.9% y/y from 11.0% for the latter.

• Australia: calendar is highlighted by employment (Thursday), expected to improve 10.0k in November after the surprisingly firm 58.6k gain in October. The unemployment rate is seen at 5.9% in November, matching October. Housing finance (Wednesday) is expected to improve 1.0% m/m in October after the 2.0% gain in September. A 0.2% m/m rise in ANZ job ads (today) is projected for November following the 0.4% rise in October. There is nothing from the RBA this week, but next week has the November meeting minutes.

• Japan: In Japan, we forecast Q3 GDP (Tuesday) to be revised up to 0.1% q/q from the initial -0.8% outcome. The October current account surplus (Tuesday) is expected to narrow slightly to JPY 1,450.0 bln from JPY 1,468.4 bln, while October machine orders (Wednesday) are seen falling 3.0%, as compared to the 7.5% rise in September. November PPI (Thursday) likely slipped further to -3.9% y/y from the prior -3.8% outcome, and the September MoF business outlook survey (Thursday) is seen falling to 8.0 from the previous 9.6.

 

[HotForex]

Macro Events & News

FX News Today

Asian stock markets are sharply down and Australian bonds posted the sharpest gains since July, as China’s exports fell for a fifth month and a sharper than expected decline in foreign exchange reserves fuelled fears about the health of the Chinese economy. Oil prices are little changed and close to the lowest level since 2009. U.S. stock futures are also lower, but U.K. stock futures are managing slight gains. Eurozone markets stabilized yesterday, with yields coming off and the DAX bouncing back from the sharp losses seen in the wake of last week’s ECB meeting. Released overnight, U.K. BRC retail sales came in much weaker than expected and should support bond futures. The calendar also has U.K. production and the final reading of Eurozone Q3 GDP.

China’s Exports fell 6.8% y/y in November, while the analysts expected for 5.0% contraction. Trade surplus narrowed to $54.1 bln in November,contrary to expectations for an increase relative to the $61.6 bln surplus in October. Exports fell 6.8% y/y in November after the 6.9% drop in October. Imports contracted at a 8.7% y/y clip in November following the 18.8% pull-back in October. The report confirms the ongoing challenges for China’s trade outlook. China’s equities are lower, with the Shanghai Composite down 1.5%. The Nikkei is down 1.0%, while the Hang Seng is off 1.7%, as Asia’s stock markets key off the declines in the US

Japan’s real GDP was revised to a 1.0% gain in Q3 (q/q, saar) from the previous 0.8% drop. An upward revision was expected, but to a very modest gain. Hence, Japan’s economy did not fall into recession after all, with contraction confined to the revised 0.5% drop in Q2 (was -0.7%). Capital spending was revised to a 0.6% gain in Q3 from the initial 1.3% drop. The improvement in Q3 growth, notably the gain in capital spending, trims the chance that the BoJ will implement further stimulus early next year. The yen is little changed, with USD-JPY holding in the 123.3 region.

US consumer credit rose $16.0 bln in Octoberafter surging $28.6 bln in September (revised from $28.9 bln), with the August increase nudged down to $14.6 bln from $16.0 bln. Non-revolving credit continued to lead the strength, rising $15.8 bln versus the $21.9 bln jump previously (revised from $22.2 bln). Revolving credit was up $0.2 bln versus September’s $6.7 bln gain.



Main Macro Events Today

• EU GDP: The final reading of Eurozone Q3 GDP is out today and should confirm growth rates of 0.3% q/q and 1.6% y/y, with the breakdown expected to show that growth remains driven by consumption and domestic demand.
• Canada Housing Permits: are released today and are seen dipping 1.0% in October after the 6.7% tumble in September and 3.6% pull-back in August.
• BoC Governor: The Bank Of Canada governor Poloz will be speaking today on “The Evolution of Unconventional Monetary Policy. The most recent policy announcement remained cautiously optimistic regarding the expected recovery in growth and acceleration in underlying inflation through 2017.

 

[HotForex]

Macro Events & News

FX News Today

German trade surplus continues to widen.Germany posted a sa trade surplus of EUR 20.7 bln in October, up from EUR 19.2 bln in the previous month, as exports declined 1.2% m/m, which was counterbalanced by a 3.4% m/m drop in imports. Import numbers have been very volatile and as this is nominal data also driven by exchange rate and especially oil price developments. Unadjusted data show a trade surplus of EUR 208.8 bln in the first 10 months of hteyear, up from EUR 177.8 bln in the corresponding period 2014. The current account surplus widened to EUR 199.5 bln in the January to October period from EUR 168.8 bln last year. So Germany is likely to remain under attack for its widening trade surplus, despite the fact that for once overall growth is actually driven largely by consumption and domestic demand.

China’s CPI grew at a 1.5% y/y pace in November, slightly better than expected following the 1.3% y/y clip in October. The annual CPI growth rate had been slowing since seeing a year high 2.0% y/y rate in August (September was +1.6% y/y), and the pick-up in November suggests government stimulus efforts may have provided some lift to demand. The PPI fell 5.9% y/y in November, matching the rate of decline in October. China’s stocks are unchanged, while the Nikkei is down 1.1% and the Hang Seng is off 0.7%.

BoC Poloz downplayed the September GDP plunge, noting that it was driven by special factors. Notably, there was a fire in the oil sands that shut-down some production. That production was back on line in October, he noted. As for Q3, he reminded that the Bank projected it would be “puffed-up” by special factors, notably the child tax credit. Moreover, the weak hand-off to Q4 was also anticipated. They will review the Q4 projection for the January MPR. He reminded that “data do not go in a straight line.” These comments were consistent with his ongoing view that the economy is evolving roughly as they expected in October. In a separate answer, he counseled patience, saying that only half the impact of the policy action this year has been seen. Poloz shot down drawing any conclusion for the discussion of unconventional policy in today’s prepared remarks. “There is no need to contemplate these measures,” he said. He said all the ingredients for Canada’s recovery are in place. “We are not talking about doing that (lowering rates to the lower bound), we are making sure our tool kit is up to date,” he said. He said the bank would use unconventional again in the case of a major shock, such as was seen in 2008. On the growth trajectory, he added that “like we said last week and in October, the pieces are coming together.”

US JOLTS job openings fell 151k in October to 5,383k, following September’s 157k rebound (revised from 149k). That caused the rate to dip to 3.6% from 3.7%. Hiring rose 57k to 5,137k after declining 1k previously (revised from -32k). The rate was unchanged at 3.6% (September was revised up from 3.5%). Quitters rebounded 52k in September after falling 44k previously (revised from -51k). The quit rate was steady at 1.9%. The data are on the old side and won’t impact the FOMC, especially as the November jobs data revealed a solid round of numbers.

Main Macro Events Today

• US Wholesale Trade: October wholesale trade data is out today and should show sales up 0.5% (median 0.3%) following a 0.8% drop in August. Inventories should be down 0.1% following a 0.5% addition in September. Data in line with these forecasts would leave the I/S ratio steady at 1.31 for a third month from August.

• RBNZ rate decision: The Reserve Bank of New Zealand is expected to cut the official cash rate today to 2.5% from 2.75% after the governor Wheeler repeated his comment that “some further easing in the OCR seemes likely”. However, as mentioned this is not the first time the governor says this.

 

[HotForex]

GBP is attracting buyers

AUDGBP, 240 min

The pound has found its feet after underperforming over the last several sessions. UK think tank NIESR helped as it issued, yesterday afternoon in London, an upward revision to its UK GDP estimate for the three months to November, now expecting 0.6% growth versus 0.5% previously. That would mark a tick higher from the official 0.5% growth clip seen in Q3. NIESR is also anticipating the BoE to hike the repo rate by 25 bp in February, which is well ahead of most forecasters and with (as the FT highlights) sterling markets factoring just 11% odds for such a move as soon as February.

AUDGBP has fallen to a 0.4765 support after turning lower around 0.4900. In addition to being at support the pair is trading outside the descending regression channel which suggests that the move by the latest down candle has taken the market too far down too fast. In addition the RSI is firmly in the oversold territory. This turns the focus to the area between 0.4791 and 0.4825 and we should be looking for short entry signals should the pair rally there. My targets for a successful short entry are at 0.4721 (T1), 0.4670 (T2).

 

[HotForex]

MACRO EVENTS & NEWS

FX News Today

Reserve Bank of New Zealand cut rates to 2.50% from 2.75%. The rate cut was widely anticipated. The reduction in the official cash rate as “monetary policy need to be accommodative to help ensure that future average inflation settles near the middle of the target range,” Governor Wheeler said. He expects this can be accomplished at the current rate setting, but assured the bank will reduce rates further if needed. On the exchange rate, he said the recent rise in the value of the New Zealand dollar has been “unhelpful and further depreciation would be appropriate in order to support sustainable growth.”

Japan’s PPI improved to a 3.6% y/y rate of decline in November from -3.8% in October. Granted, that is still troublesome for the Bank of Japan’s efforts to reflate the economy, but at least the rate of decline did not worsen. The PPI fell 0.1% m/m in November after the 0.6% plunge in November.

Australia employment surged 71.4k in November after the revised 56.1k gain in October (was +58.6k). The hefty gain in November, which was the largest one month gain since July of 2000, contrasted with expectations for a modest dip following the sizable rise in October. Full time jobs grew 41.6k in November after the 38.4k rise in October (was +40.0k). Part time jobs rose 29.7k after a 17.7k gain (was +18.6k). The unemployment rate fell to 5.8% in November from 5.9% while the participation rate rose to 65.3% in November from 65.0%. Two consecutive months of stellar job growth confirms that the RBA’s stimulus efforts are working. Moreover, it trims prospects for further cuts from the RBA next year. We see no change for an extended period. AUD-USD shot higher to the 0.7300 area from 0.7250 ahead of the report.



Main Macro Events Today

SNB Rate Decision: The SNB was in luck and Draghi didn’t quite deliver the bazooka markets had been hoping for, which meant market reaction didn’t go quite according to plan and this gives the SNB some time to watch how things develop. That doesn’t mean, there couldn’t be further easing outside a policy setting meeting if there is fresh upward pressure on the currency.

BoE Rate Decision: No change is expected in the Bank of England’s 0.5% rate policy.

Canada Capacity Utilization: We expect the capacity use rate, due Thursday, to recover to 82.0% in Q3 (median 82.1%) from 81.3% in Q2. The anticipated improvement tracks the 2.3% rebound in Q3 GDP after the 0.3% drop in Q2 and the 0.7% pull-back in Q1.

US Initial Jobless Claims: Initial claims data for the week of December 5 are out today and should show claims at 268k (median 267k) for the week, down from 269k in the week prior but above the 260k reading before that. Despite improvements in claims data we tend to see increased volatility around the holiday season which accounts for some of the increase in the November average to 269k. We expect a December average of 266k which compares to our forecast for nonfarm payrolls of 190k for the month.

 

[HotForex]

USDJPY RATTLED BY THE MACRO DATA

USDJPY, Weekly

USDJPY has dropped below the previous trading range and has since bounce higher from another range near 121.00. Japanese core machinery orders data yesterday showed a jump of 10.7% m/m in October. The market consensus had been for a 1.5% decline, and the data follows a 7.5% m/m gain in September. In y/y terms, orders are up 10.3%. The data are encouraging, and follows a big upward revision in Japan’s Q3 GDP this week, to +1.0% y/y from the -0.8% originally reported, which shows that the country didn’t fall into a technical recession after all. The data has softened the possibility for the BoJ expanding its QQE policy in January, which is the prevailing market expectation.

In the weekly picture USDJPY has broken below a rising trendline and since made a return move to it. Price failed to move above the trendline after which it corrected lower. This creates a third lower high in the weekly picture since June this year and signals that this market is getting bearish. The nearest weekly resistance level is at 122.25 while a weekly high from September at 121.24 acts as the nearest support.

USDJPY, 240 min

The bounce from the 121.24 support suggests that the price could rally to previous support area at 122.60 – 122.80. This area is likely to be a resistance now. This area coincides roughly with the 30 and 50 period moving averages. We will be looking sell signals should the price rally to this area. My targets are 121.50 (T1) and 120.62 (T2).

 

[HotForex]

MACRO EVENTS & NEWS

FX News Today

German Nov HICP inflation was confirmed at 0.3% y/y, as expected. The national rate was steady at 0.4% y/y and the CPI rate excluding energy fell back marginally to 1.3% y/y from 1.4% y/y. The sharp difference between headline inflation and the ex-energy figure highlights, however, once again that lower energy prices are the main driven behind the weak numbers, which also means the risk of a real deflationary spiral is limited.

Both BoE and SNB left policy unchanged at yesterday’s council meeting, as expected. The BoE is still eying a rate hike, but is clearly in no hurry, and if anything the statement was a tad more dovish than the November inflation report. The SNB meanwhile remains ready to intervene on currency markets if necessary. The BoE minutes, released at the same time, showed an 8-1 majority in favour of steady policy, with McCafferty continuing his dissent in favour of a rate hike. The vote to maintain the stock of purchased assets at GBP 375 bln was taken unanimously, as in the last meeting. The BoE’s November inflation report was already a tad more dovish and the MPC said today that the risks to the view back then that “if Bank Rate were to follow the gently rising path implied by the prevailing market yields then inflation would exceed slightly the 2% target in two years and then rise further above it”, lie a little to the downside in the first two years. This means under the implied gentle tightening path inflation may no longer exceed target in two years’ time, but not necessarily that it won’t reach the target.

US reports revealed the expected big trade price hits from commodity prices in November before likely bigger declines in December, with broad-based price drops beyond commodities, and particular weakness in export prices. We also saw a 13k initial claims rise to 282k in the first week of December that extended the 9k bounce to 269k in the Thanksgiving week of November. The sharp 22k two-week climb for claims raises the stakes for next week’s report, though for now the rise can be attributed to holiday volatility. We still expect a 200k December payroll rise that undershoots big recent gains of 211k in November and 298k i n October as well as the 210k average year-to-date gain for 2015, but that beats the 174k Q3 average monthly gain.



Main Macro Events Today

US Retail Sales: November retail sales are out today and should reveal a 0.3% (median 0.3%) headline with a 0.3% (median 0.3%) increase ex-autos. This follows October figures of 0.1% and 0.2% respectively. Despite the firm auto sales data for November, retail sales are facing headwinds from the decline in gasoline prices and a drop in construction hours worked as we discussed in Monday’s commentary.

US PPI: November PPI should reveal a 0.1% (median unchanged) headline with a 0.1% (median 0.1%) increase for the core. This should bring the y/y figure to -1.2% from -1.6% in October which set a new recent low. Declines in oil prices over the past year have acted to hold down most inflation measures.

US Business Inventories: October business inventories should come in unchanged (median 0.1%) headline for inventories with shipments for the month down 0.2%. This follows respective September figures of 0.3% for inventories and unchanged for September. Data in line with this forecast would leave the I/S ratio at 1.38, steady from September.

 

[HotForex]

Economic Week Ahead

Main Macro Events This Week

• United States: This weeks market highlight is going to be the FOMC meeting on Wednesday, U.S. Fed policymakers are widely expected to start moving interest rates higher with the first small rate hike seen this week, traders should understand that this would be the first rate hike since the the middle of 2006. The expected rate increase is for 25 bps, this would push the Feds’s target range to 0.25% to 0.50%. It should also be noted that the markets have been pricing in an expected rate increase for a few weeks already, so traders should expect the short term market reaction to create choppy trading conditions in the wake of this Wednesdays FOMC Statement and release of the U.S. Federal Funds Rate.

• Canada: On tap for Canada is the CPI (Friday) and is expected to accelerate to a 1.4% y/y pace in November from the 1.0% rate that prevailed in September and October. The Bank of Canada’s core CPI index is seen growing by analyst 2.2% y/y in November following the stable 2.1% growth in August, September and October. Core CPI is expected to fall 0.1% m/m in November after the 0.3% gain in October. Manufacturing shipments (Tuesday) are seen falling 0.5% in October after the 1.5% drop in September. But wholesale shipments (Friday) are seen rising 0.5% in October after the 0.1% dip in September. We will also see two more housing releases: the always interesting existing home sales report for November (Tuesday) and the November Teranet National Bank Housing Price Index (Monday). Also of interest will be the national balance sheet and financial flows accounts release from Statistics Canada (Monday), which will contains the debt to disposable income ratio. The ratio rose to a record high 164.5% in Q2 and a further expansion is expected. International transactions in securities for October is due on Wednesday. The Bank of Canada publishes the Financial System Review (Tuesday). The Review, which is published twice a year (June and December) will be followed by a press conference held by Governor Poloz and Senior Deputy Governor Wilkins.

• China: China released November industrial production and retail sales over the weekend and better than expected results could provide some offset to the sharp sell off in stock markets on Friday. Production posted a 6.1% y/y growth rate, with retail sales at 11.2% y/y.

• Japan: The BoJ meets (Thursday, Friday) and is not expected to make any changes. Recent data has improved a bit, the December Tankan index (Monday) is expected to fall to 10 from 12 for large manufacturers, and to 23 from 25 for large non−manufacturers. The October tertiary index (Monday) is seen improving to up 0.5% m/m from the prior −0.4% reading. Revised October industrial production (Monday) is seen unchanged at 1.4% y/y. The November trade report (Thursday), should show drop to a deficit of JPY 500 bln, versus a revised JPY 108.3 bln surplus. Exports, in particular, will be the focus.

• Australia: Focus will be on the minutes of the RBA’s December meeting (Tuesday). Assistant Governor (Financial Markets) Guy Debelle delivers a speech titled “Some Effects of the New Liquidity Regime” to The Australasian Finance and Banking Conference, (Wednesday). The date calendar is thin, but does have the Q3 home price index (Tuesday), which we expect will grow 2.0% (q/q) after the 4.7% gain in Q2.

• New Zealand: the NZD calendar has Q3 GDP (Thursday), expected to improve to a 0.5% growth pace (q/q, sa) following the 0.4% rate of expansion in Q2. The current account (Wednesday) is seen worsening to a −NZ$4.5 bln deficit in Q3 from the −NZ$1.2 bln shortfall in Q2. There is nothing from the RBNZ this week following the well−anticipated 25 basis point cut that left the official cash rate at 2.50% last week.

• Eurozone: Some ECB speak comes from ECB President Mario Draghi later today. On tab the data releases include December confidence data, but are unlikely to change the picture much. At least for now, the ECB seems to be done with further easing and it looks like nothing much is going to happen until March. The ECB’s economic bulletin on Thursday is likely to confirm this picture.

• Germany: The ZEW Investor confidence on (Tuesday) is seen rising slightly to 11.2 (med 17.3) from 10.4 in the previous month, although analyst view the risk is to the downside as the ongoing sell off in commodities has been weighing on stock markets and investor confidence. The German Ifo Business Climate reading meanwhile should benefit somewhat from the rebound in manufacturing orders and analyst are looking for a marginal rise to 109.1 (med 109.0) from 109.0 in the previous month. Eurozone Markit PMI − Manufacturing − Flash readings also expected to hold pretty steady with the manufacturing number seen steady at 52.8 (med 52.7) and the services reading steady at 54.2 (med 54.1), which should leave the composite unchanged at 54.2 (med 54.1).

• United Kingdom: November data for inflation (Tuesday), labor market (Wednesday), and retail sales (Thursday) highlight, while the December CBI industrial trends survey is also up (Thursday). The labor market data will be a key focus as the minutes to last week’s December BoE meeting showed the Monetary Policy Committee highlighting the recent decline in nominal pay growth, which was taken by markets as a dovish shift in thinking, in turn dampening expectations for a BoE rate hike.

 

[HotForex]

MACRO EVENTS & NEWS

FX News Today

The European calendar today will focus on German ZEW investor confidence and U.K. inflation data for November; USD traders will keep on eye on the CPI numbers, while the CAD could see some price action as the BoC Governor Poloz will make a speech later in the evening.

The USD is under some selling pressure ahead of today’s CPI numbers, and the EUR continues its charge higher, however, market volatility should prevail in the up-coming trading days as we move closer to the end of year FOMC highlight meeting on Wednesday. This meeting will set the trading stage for the future of the USD interest rate expectations.

U.S. stock markets finished up +103 points at the start of the week while stock markets in Asia stock ended mostly down; Japan’s Nikkei dropped by more than 1.6%. Oil prices are pulling back slightly after yesterday’s price rally, U.S. Oil is currently trading above the USD 36 per barrel mark in risk on trading.

The theme for the remainder of the week is an increase in market volatility ahead of the Fed rate decision tomorrow, however, its expected for markets to absorb the expected rate hike with ease since this event has had plenty of time to price in. Traders should never the less remain on alert as market’s surprises can never be ruled out.

Main Macro Events Today

• EUR German ZEW: ZEW Investor confidence is seen rising slightly to 11.2 (med 17.3) from 10.4 in the previous month, although analyst view the risk is to the downside as the ongoing sell off in commodities has been weighing on stock markets and investor confidence. The prospect of a Fed rate hike meanwhile has been pretty much absorbed by the markets.

• U.K. GBP CPI: We expect inflation to tick higher, forecasting the headline CPI rate to lift to 0.1% y/y (median same) from-0.1%, and the core CPI rate to rise to 1.2% (median same) from 1.1%. As the BoE has been foretelling, inflation will start to pick up as the impact of oil-driven price declines from a year ago start to drop out of y/y comparisons. The BoE is forecasting CPI to pick up through 2016, though only moderately, expecting that it will remain below 1.0% into the second half of the year.

• USD Consumer Price Index: November CPI is out today and should reveal a 0.1% (median unchanged) headline with a 0.2% (median 0.2%) increase for the core. This follows October figures of 0.2% for both the headline and the core. Energy prices have kept inflation measures depressed recently and analyst expect that trend to continue in this release with an anticipated 2% gasoline price decline.

• USD Empire State Manufacturing Index: The December Empire State Index is out today to kick off the month’s producer sentiment data. Analyst expect an increase to -8.0 (median -6.0) from -10.7 last month. Sentiment measures have been trending sidewards over the course of the fall with the ISM-adjusted average of all reports holding at 50 since September.

 

[HotForex]

USDCAD UPDATE, 1.40 IN SIGHT ON BREAK ABOVE 1.38

USDCAD, Monthly

The CAD sinks as Canada manufacturing shipments tumbled 1.1% in October, petroleum and coal shipments plunged 5.7%, marking the fifth straight decline in the sector. Aerospace and parts shipments contracted 10.3%, with Statistics Canada noting that monthly volatility is the norm for the sector. Machinery sales declined 4.6% in October. A 4.9% improvement in motor vehicle sales provided a partial offset. Shipment volumes fell 1.0% in October, which begins the monthly GDP tally on a weak note.

The monthly chart remains bullish with possible pullbacks towards the 1.3450′s as a possibility; the May 2004 highs near the 1.40′s looks to be in sight provided USDCAD price action can break and hold above the 1.38′s.


John Knobel
Senior Currency Strategist

HotForex

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[HotForex]

MACRO EVENTS & NEWS

FX News Today

Today’s main event is the long awaited U.S. Interest Rate Decision. My view is that the U.S. Fed will raise interest rates today. I believe that the Fed understands that if they fail to hike today, the U.S. Fed’s credibility will most certainly be challenged. Let’s not forget that the U.S. Fed has been holding the markets hostage for many months, thereby creating a large amount of uncertainty in the markets with constant talk about the pending interest rate adjustment higher, only to disappoint the markets with no action during the previous meetings. Today’s “potential” rate hike will open the door, in my opinion, for further rate hikes over the coming year. Most professional traders are very aware of this fact and have already been adjusting positions accordingly.

In overnight stock market trading and ahead of today’s important U.S. Fed Interest Rate Decision, global stock markets surged higher, with solid gains in Asian, Europe and Wall Street yesterday. The “pending” increase in U.S. Dollar borrowing cost is viewed by the stock markets as a net positive that the economy is healthy and that growth will continue to follow despite the higher cost of borrowing.

So far today, the USD has consolidated yesterday’s gains, after core CPI data out of the U.S. provided a final conformation of market expectations for the Fed to deliver a long-awaited rate hike later today.

The general market mode for today, I would see it as swinging between “risk-on” and “risk-off” as traders jockey for positions, with high volatility especially during the U.S. FOMC Press Conference scheduled for later tonight at 7:30PM GMT. The heavy price action will be around the FOMC Economic Projections, the FOMC Statement followed by the FOMC Press Conference. Traders will have a long night of trading with plenty of action expected. I wish you all good luck on this historic trading day!

Main Macro Events Today

• EUR CPI data: the final reading of CPI data for November, which should confirm the headline rate at 0.1% y/y (med same) and core inflation at 0.9% y/y. The decline in oil prices remains the main factor weighing on CPI, although core inflation also eased slightly last month, as the drop in basic goods prices is feeding through the production chain. Still, the ECB already reacted to this by easing policy further and ECB’s Coeure said deflation risks are off the table now with the latest set of measures, so the numbers won’t change the policy outlook.

• USD U.S. Industrial Production: November industrial production is out on today and should reveal a 0.2% (median -0.2%) decline which would mark the third strait month of 0.2% drops. Despite the firm November employment report there is some downside risk to industrial production as factory employment declined by 1k and mining employment was down by 11k for the month. We expect capacity utilization at 77.3% (median 77.4%) from 77.5% in October.

• USD U.S. Housing Starts: November housing starts are out today and analyst expect a 1,130k (median 1,133k) headline following a 1,060k headline in October which marked an 11.0% decline from September. Analyst expect permits at 1,150k from 1,161k and completions should rise to 1,000k from 965k in October. The warmer weather through November should lend some upside risk to the release despite the slow down in the already released November NAHB which declined to 62 from 65 in October.

• USD Interest Rate Decision: FOMC made two key changes in the policy statement that put a Fed hike on the table for today, even as it left rates unchanged in October. Fed removed the comment from the September statement that “recent global economic and financial developments may restrain economic activity somewhat” and replaced it with “monitoring” developments. Also said “in determining whether it will be appropriate to raise the target range at its next meeting” Those two changes reversed the dovishness from the September meeting and ostensibly reduced the concerns over the slowdown in China that Chair Yellen mentioned in her presser Statement somewhat at odds with slowing in recent data, however, but acknowledged job gains had slowed while unemployment rate held steady Inflation continues to run the below the Committee’s long run target.

 

[HotForex]

2016 – FINALLY, THE RETURN TO NORMALIZATION, I’LL BUY THE USD ON DIPS!

Finally, after almost 10 years, the U.S. economy is strong enough to handle higher interest rates after nearly a decade of financial crisis emergency life support by the Fed.

Key Points:

• The Fed raised rates by 25 basis points yesterday;
• This was followed by a statement that said more rate hikes are on the way;
• Rate increases will be at a “gradual pace”;
• The Fed will remain “data Dependent”.

The above key points give me enough support to buy US dollars on weakness, provided the data stream does not fall off a Cliff.

What do USD traders do from here?

The trading strategy, as we move forward the post rate hike, in my opinion, is to keep an eye on the U.S. economic data stream (Economic Calendar) and as long as the data is relatively positive, buy the USD on weakness.

Trade safe friends.