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Friday, May 25, 2007
NEWS: Ukraine President-Preparing to Use Force-PM-Reuters
People thought that the situation in Kiev would calm down following an escalation in the political crisis Thursday but with the Police in one corner and the military (interior ministry troops) in the other it is clear that the crisis could take on a more serious tone. The Prime Minister has accused the President of preparing to use force in the struggle for control.
EUR/USD: European Interest Rates Helping Underpin
EUR/USD is being underpinned by narrowing interest rate differentials a touch. Bunds have sold off heavily again this morning (down about 2/3 of a point) while US notes are steady after the home sales disappointment.
Offers between 1.3460 and 70 have been absorbed but markets trade a bit long intraday after a healthy from the 1.3412 lows in Asia. Rebounding US equities are helping support carry trades and the EUR/USD leg of the equation in the process. EUR/USD trades at 1.3463 after reaching 1.3472 shortly after the data.
Offers between 1.3460 and 70 have been absorbed but markets trade a bit long intraday after a healthy from the 1.3412 lows in Asia. Rebounding US equities are helping support carry trades and the EUR/USD leg of the equation in the process. EUR/USD trades at 1.3463 after reaching 1.3472 shortly after the data.
US TECHS: Commodities Outlook; Gold and Oil
[Gold] hits its worst levels in well over two months yesterday. The sluggish bear trend in place on Trend Intensity got a boost, upticking on the day, but should sidetick today due to the bounce. Today's modest boost in prices is attributed to North Korean missile firings.
Weekly trend models are set to confirm a bearish shift at today's close. With month end drawing closer, the market needs a $20 jump in price in order to retain still-bullish monthly trends and prevent a shift to neutral. For today, resistance is found at $660-61 and support at $649.
[Oil] moved firmly lower yesterday but has been unable to trigger a new Trend Intensity signal. Daily trend models (not Trend Intensity) turn bearish today with a sub-$65.45 close.
However, ability to finish the month above $65.30 retains much more critical bullish monthly trends. Resistance today is at $65.45-60; supports start at $63.30. Technical levels are more stretched out due to the expansion of recent range.
Weekly trend models are set to confirm a bearish shift at today's close. With month end drawing closer, the market needs a $20 jump in price in order to retain still-bullish monthly trends and prevent a shift to neutral. For today, resistance is found at $660-61 and support at $649.
[Oil] moved firmly lower yesterday but has been unable to trigger a new Trend Intensity signal. Daily trend models (not Trend Intensity) turn bearish today with a sub-$65.45 close.
However, ability to finish the month above $65.30 retains much more critical bullish monthly trends. Resistance today is at $65.45-60; supports start at $63.30. Technical levels are more stretched out due to the expansion of recent range.
USD/CHF: Data Weight Finally Brought To Bear
A slow reaction from a slow Friday USD/CHF market but the soft U.S housing data has finally pushed price out of its 1.2263 to 1.2283 range and brought small profit taking sales into play. The fall to 1.2258 is still insignificant compared with moves seen on the other majors.
Most of the Swiss franc activity has been put through the cross with the CHF again losing ground to the EUR. Spot support remains at 1.2240, May 23 lows, and a very flat 200-day moving average provides the resistance point at 1.2320.
Most of the Swiss franc activity has been put through the cross with the CHF again losing ground to the EUR. Spot support remains at 1.2240, May 23 lows, and a very flat 200-day moving average provides the resistance point at 1.2320.
EUR/USD: Disappointing Home Sales Keep EUR Bid
EUR/USD trades close to session highs at 1.3458 but there has been little follow-through buying. With the USD already on the defensive, dealers have thus far not been able to extend the range. US bond yields are firmer despite the home sales data and offers are seen in the 1.3460/70 window.
GBP/USD: Lent Support by Disappointing US Existing Home Sales
Cable is eliciting support from April's disappointing US existing home sales. These came in at 5.99 million, versus the 6.13 million forecast, from an upwardly revised 6.15 million in March. GBP/USD resistance levels include 1.9861 (today's Asian session high), 1.9882 (today's early Europe top), 1.9890 (yesterday's peak) and 1.9895 (Wednesday's high).
Buy stops are pegged above 1.9900. Sterling bids are tipped at 1.9830, with some sell stops touted below 1.9825. Wednesday's MPC minutes disclosure that the BoE MPC mulled a 50bp base rate hike earlier this month is helping underpin the pound.
The MPC is expected to hike the base rate by another 25bp to 5.75% this summer. The consensus forecast is that this increase will come in August but a June or July hike cannot be discounted. There is a 30% chance of the UK base rate hitting 6.0% this year, according to a Reuters poll of 62 economists.
Buy stops are pegged above 1.9900. Sterling bids are tipped at 1.9830, with some sell stops touted below 1.9825. Wednesday's MPC minutes disclosure that the BoE MPC mulled a 50bp base rate hike earlier this month is helping underpin the pound.
The MPC is expected to hike the base rate by another 25bp to 5.75% this summer. The consensus forecast is that this increase will come in August but a June or July hike cannot be discounted. There is a 30% chance of the UK base rate hitting 6.0% this year, according to a Reuters poll of 62 economists.
USD/JPY: Eases After Slide in Existing Home Sales
Existing home sales have declined by 2.6%, more than expected, a four-year low, weighing on the USD with USD/JPY retreating to 121.51 on the data, down from the highs of 121.75 seen so far. US ten-year bond yields had highs around 4.866% this morning prior to the data, keeping USD/JPY bid, but have now dropped back to 4.855%, also adding to USD pressure.
However, in the wake of overnight volatility and ahead of the long weekend, with many traders already taking today off, dealers are looking to square up quickly into the London close and before US midday hoping for better trading conditions next week. USD/JPY intraday support is at 121.45 with further support at 120.90/00. Offers remain at 121.75 and above.
However, in the wake of overnight volatility and ahead of the long weekend, with many traders already taking today off, dealers are looking to square up quickly into the London close and before US midday hoping for better trading conditions next week. USD/JPY intraday support is at 121.45 with further support at 120.90/00. Offers remain at 121.75 and above.
US ECON: April Existing Home Sales Fall 2.6% to 5.99 Mln
Housing resales slowed to their lowest rate in four years in April, off 2.6% to a 5.99 mln annual rate. The IFR consensus was 6.115 mln and IFR was 6.150 mln. The low in our survey was 5.900 mln. The inventory of unsold homes rose to 8.4 months and price was up on a month-ago basis but lower on a year-ago basis for a ninth straight month.
The rate was the lowest since 5.94 mln in May and June of 2003. The 8.4-month supply is the highest on records dating to 1999. In January 2005, the backlog was as short 3.6 months. The rate homes available 4.2 mln is the highest level on record (dating back to January 1999). The number of condos sold and single family homes dropped in April. Sales fell in all the four consensus regions.
The median prices of existing homes sold were 220.9k, a four month high. The average single family home and condo rose to its highest level (268.4k) since November 2006. Existing home prices in the northeast were up 2.2% and in the Midwest were 2.2% higher from March. Prices in the South slowed to a 0.3% rise from a 0.9% increase in April and the West saw a 1.2% gain.
The rate was the lowest since 5.94 mln in May and June of 2003. The 8.4-month supply is the highest on records dating to 1999. In January 2005, the backlog was as short 3.6 months. The rate homes available 4.2 mln is the highest level on record (dating back to January 1999). The number of condos sold and single family homes dropped in April. Sales fell in all the four consensus regions.
The median prices of existing homes sold were 220.9k, a four month high. The average single family home and condo rose to its highest level (268.4k) since November 2006. Existing home prices in the northeast were up 2.2% and in the Midwest were 2.2% higher from March. Prices in the South slowed to a 0.3% rise from a 0.9% increase in April and the West saw a 1.2% gain.
USD/JPY: Bullish Trend Signal Continues to Advance
The USD/JPY bullish trend intensity signal has continued to advance, rising another notch to 25. The EUR/USD trend signal is neutral at 17 and the GBP/USD trend signal is neutral at 15. The USD/CHF trend signal is bullish at 16, advancing another notch on Thursday.
The EUR/JPY trend signal is consolidating and is neutral, easing to 29. The EUR/GBP trend signal is bearish, rising a notch to 14. These proprietary indicators are updated each trading day after the NY close.
The EUR/JPY trend signal is consolidating and is neutral, easing to 29. The EUR/GBP trend signal is bearish, rising a notch to 14. These proprietary indicators are updated each trading day after the NY close.
Swiss Outlook (25th May 2007)
The increase in SNB rhetoric over the last few days has spurred the Q2 50bp debate but some in the market have gone as far as to call for an emergency rate hike to combat Swiss Franc weakness. The Franc rallied into European trading on such talk but local names continue to suggest that more aggressive mores are unlikely.
USD/CHF was sold back from 1.2293 to 1.2260 while EUR/CHF dropped back below 1.65 to print a fresh intraday low at 1.6475. The CHF consolidated its gains ahead of the KoF data but the upbeat 2.00 speculation failed to come to fruition. Instead the May leading indicator came in close to expectations at 1.96 to leave both USD/CHF and EUR/CHF little changed.
Offers in the cross into the figure look to cap rebounds while bids in USD/CHF are seen back from 1.2250 to 1.2240 to protect the sub-40 stops. Looking ahead, and the event-risk profile is generated by the 14:00 GMT existing home sales for April and the 14:30 GMT ECRI weekly index of economic activity for May 18th. Should the Dollar strengthen then offers into the 1.2300's will once again be looked for.
USD/CHF was sold back from 1.2293 to 1.2260 while EUR/CHF dropped back below 1.65 to print a fresh intraday low at 1.6475. The CHF consolidated its gains ahead of the KoF data but the upbeat 2.00 speculation failed to come to fruition. Instead the May leading indicator came in close to expectations at 1.96 to leave both USD/CHF and EUR/CHF little changed.
Offers in the cross into the figure look to cap rebounds while bids in USD/CHF are seen back from 1.2250 to 1.2240 to protect the sub-40 stops. Looking ahead, and the event-risk profile is generated by the 14:00 GMT existing home sales for April and the 14:30 GMT ECRI weekly index of economic activity for May 18th. Should the Dollar strengthen then offers into the 1.2300's will once again be looked for.
Sterling Outlook (25th May 2007)
Sell interest at 1.9880 kept a lid on cable following its early Europe break through the peak of today's 1.9833-1.9861 Asian session range. Further offers are touted ahead of 1.9900, with some buy stops pegged above 1.9900. Yesterday's high was 1.9890. Wednesday's peak was 1.9895. Helping underpin the pound is the expectation that the UK base rate will be raised to 5.75% this summer.
The consensus forecast is that this increase will come in August but a June or July hike cannot be discounted. There is a 30% chance of the base rate hitting 6.0% this year, according to a Reuters poll. UK Q1 annualized GDP has been upwardly revised to 2.9%, from 2.8%. The annualized GDP deflator has also shot up to a 3-year+ high of 3.2%.
MPC member Sentance says the BoE wants to make sure that signs of increased confidence among UK companies to increase prices does not feed through into a broader continued rise in UK inflation (Newcastle Journal/Reuters). US April existing home sales will be disclosed at 14:00GMT. Forecast: 6.13 million, from 6.12 million in March.
The consensus forecast is that this increase will come in August but a June or July hike cannot be discounted. There is a 30% chance of the base rate hitting 6.0% this year, according to a Reuters poll. UK Q1 annualized GDP has been upwardly revised to 2.9%, from 2.8%. The annualized GDP deflator has also shot up to a 3-year+ high of 3.2%.
MPC member Sentance says the BoE wants to make sure that signs of increased confidence among UK companies to increase prices does not feed through into a broader continued rise in UK inflation (Newcastle Journal/Reuters). US April existing home sales will be disclosed at 14:00GMT. Forecast: 6.13 million, from 6.12 million in March.
Yen Outlook (25th May 2007)
Strong Dollar demand from importers and investment trust accounts helped put a floor under the market at levels around 121.25 early in the Asian session but determined Middle East selling, carry trade unwinding, large Japanese city bank sales from levels around 121.45-50 plus a sizeable amount of miss-led data players selling out of intraday longs forced the market to lows of 120.85.
A cruel twist for the short-term players with the Dollar turning sharply higher following Japanese CPI data correction from down 0.4% to down 0.1%. Importers still have clout and the move back to levels around 121.45-47 in early London was reportedly driven mainly by Japanese names and helped by news of N.Korea missile launches into the Sea Of Japan.
A healthy clear out and although the downside is calling another run higher is possible before the week is out. Option related interest could shape European action with 121.50 expiries and stops touted tight above. Offers 121.65 through 121.85 with 122.00 barriers. Small bids in the 121.20-30 area and stops under 121.00. We look for a 121.35 to 121.65 range into New York.
A cruel twist for the short-term players with the Dollar turning sharply higher following Japanese CPI data correction from down 0.4% to down 0.1%. Importers still have clout and the move back to levels around 121.45-47 in early London was reportedly driven mainly by Japanese names and helped by news of N.Korea missile launches into the Sea Of Japan.
A healthy clear out and although the downside is calling another run higher is possible before the week is out. Option related interest could shape European action with 121.50 expiries and stops touted tight above. Offers 121.65 through 121.85 with 122.00 barriers. Small bids in the 121.20-30 area and stops under 121.00. We look for a 121.35 to 121.65 range into New York.
Euro Outlook (25th May 2007)
Into Friday and spot hit a 6-week low at 1.3412 in Asian trading as EUR/JPY sales weighed. Euro crosses across the board were impacted as aggressive US name sales were seen in Asia, however, option barriers at 1.3400 remained protected and as a result the downside looked fortified.
Into Europe and EUR/USD bounced but offers into the 1.3440's capped the topside to leave the downside in focus. Stops are noted above 1.3450 and again above 1.3460 but London dealers suggest that while spot trades sub-1.3475 it remains bearish. Looking ahead, the event-risk profile is generated by the 14:00 GMT existing home sales data (April) and the 14:30 GMT ECRI weekly index of economic activity (May 18th) release.
The slow data conclusion to the week could aid the Dollar and should the US unit strengthen into the weekend then the option barriers into 1.3400 will come back into focus. Dealers cite the 1.34/35 range as the new medium-term directional triggers but option traders note the expiries today at 1.3400, 50 & 1.3500 that could keep the spot market contained inside recent parameters into the NY cut at 14:00 GMT.
Into Europe and EUR/USD bounced but offers into the 1.3440's capped the topside to leave the downside in focus. Stops are noted above 1.3450 and again above 1.3460 but London dealers suggest that while spot trades sub-1.3475 it remains bearish. Looking ahead, the event-risk profile is generated by the 14:00 GMT existing home sales data (April) and the 14:30 GMT ECRI weekly index of economic activity (May 18th) release.
The slow data conclusion to the week could aid the Dollar and should the US unit strengthen into the weekend then the option barriers into 1.3400 will come back into focus. Dealers cite the 1.34/35 range as the new medium-term directional triggers but option traders note the expiries today at 1.3400, 50 & 1.3500 that could keep the spot market contained inside recent parameters into the NY cut at 14:00 GMT.
Thursday, May 24, 2007
GBP/USD: Barker Credits Low Rates with Housing Boom
One of the downsides of an accelerated tightening cycle by the BOE almost certainly be a stall in the UK housing market. That is the implicit message dealers are taking from comments from MPC member Barker in comments made today on low rates helping fuel the property boom.
With a rise to 6% seen later this year, housing could be in for a rough time after a long bull market. Much has been made of the US housing "bust". It is probably about time to be fretting over the UK. Cable is easing back below 1.9875 support as US yields rise along with their UK counterparts.
30-year bonds have broken through 5% for the first time since January and 10-year notes are at multi-month high yields as well. 1.9850 bids are eyed on further pullbacks.
With a rise to 6% seen later this year, housing could be in for a rough time after a long bull market. Much has been made of the US housing "bust". It is probably about time to be fretting over the UK. Cable is easing back below 1.9875 support as US yields rise along with their UK counterparts.
30-year bonds have broken through 5% for the first time since January and 10-year notes are at multi-month high yields as well. 1.9850 bids are eyed on further pullbacks.
USD/JPY: Steady; Underpinned by Rising US Bond Yields
USD/JPY remains steady this morning, holding within a band of 121.40-60. A high of 121.56 has been seen since the lows earlier today with USD/JPY underpinned by JPY cross demand against the dollar bloc currencies. Also supporting USD/JPY is the rise in US bond yields with the US ten-year yield at 4.849% and fresh three-and-a-half-month highs.
Offers remain strong ahead of 122.00 however with exporter selling tipped at these levels. Bids remain at 121.20/25 with stops below. Note that the mystery buying was seen in the Japan FB auction last night but only took up 38% of the issue worth Y1.5 tln or $12.5 bln. The demand still smacks of central bank interest and possible diversification.
Offers remain strong ahead of 122.00 however with exporter selling tipped at these levels. Bids remain at 121.20/25 with stops below. Note that the mystery buying was seen in the Japan FB auction last night but only took up 38% of the issue worth Y1.5 tln or $12.5 bln. The demand still smacks of central bank interest and possible diversification.
USD/JPY: Bullish Trend Signal Jumps Two Notches
The bullish trend intensity signal for USD/JPY has jumped two notchs to 23. The EUR/USD trend signal remains neutral at 17, as does the GBP/USD signal. The USD/CHF trend signal is bullish, rising a notch to 14.
The EUR/JPY trend signal remains neutral and stalled at 30. The EUR/GBP bullish trend signal failed, easing to 12 but is at trend-ready levels. These proprietary indicators are updated each trading day after the NY close.
The EUR/JPY trend signal remains neutral and stalled at 30. The EUR/GBP bullish trend signal failed, easing to 12 but is at trend-ready levels. These proprietary indicators are updated each trading day after the NY close.
Swiss Outlook (23rd May 2007)
After the Roth comments yesterday and the Jordan comments today the Franc started the day on a high. The exiting of carry trades saw USD/CHF sold back to 1.2270 as EUR/CHF ran the stops noted below 1.6525. Swiss and other assorted name buyers stalled the move lower before a Dollar bid-tone emerged and forced the pair to bounce.
Rates broke back into the 1.23's but US player sales into 1.2310/15 capped and the price has since traded a choppy range near the 1.23 mark. EUR/CHF hit 1.6505 amid the early Franc strength but the late volatility has seen the price look to bounce. Offers into 1.6525/30 cap. Looking ahead, US data is sparse in North American trading with weekly mortgage data already in circulation. At 13:30 GMT, the Fed Board of Governors meet in Washington to hold an open meeting on "open-end credit".
Following this, more Kroszner comments are set to air around 17:00 GMT. Local traders look to the Swiss data due later this week. Trade balance data and the Friday KOF Leading Indicator are expected to provide some support for the CHF in the wake of the hawkish Roth and Jordan comments.
Rates broke back into the 1.23's but US player sales into 1.2310/15 capped and the price has since traded a choppy range near the 1.23 mark. EUR/CHF hit 1.6505 amid the early Franc strength but the late volatility has seen the price look to bounce. Offers into 1.6525/30 cap. Looking ahead, US data is sparse in North American trading with weekly mortgage data already in circulation. At 13:30 GMT, the Fed Board of Governors meet in Washington to hold an open meeting on "open-end credit".
Following this, more Kroszner comments are set to air around 17:00 GMT. Local traders look to the Swiss data due later this week. Trade balance data and the Friday KOF Leading Indicator are expected to provide some support for the CHF in the wake of the hawkish Roth and Jordan comments.
Sterling Outlook (23rd May 2007)
Into European trading and the impending BoE minutes kept the Pound from feeling the full force of the Dollar rally. Cable dropped to 1.9717 amid the dip but the publication of the 9-0 MOC verdict aided Sterling as hopes increased for further UK rate hikes.
However, it was the news that the BoE mulled over a 50bp move that garnered the most support for GBP from the macro market. Comments that UK rates may need to move again if the "economy grew in line with projections" helped trading bounce back above 1.9750 and offers into 1.9760/70 and 1.9790/9800 were absorbed into the North American open. Cable is now looking to retrace back to the 1.9875 level, which stands as the daily high May 16th, while EUR/GBP looks to drop back to the double-day low at 0.6781 (May 9th & 10th).
However, news that the MPC want to wait for more data could weigh on the short-term outlook. The BoE want to see how the previous four hikes (to 5.5%) since August had affected the economy. A break above 1.9880 adds pressure to the topside while EUR/GBP bears will be encouraged by a break in the cross below 0.6775 support.
However, it was the news that the BoE mulled over a 50bp move that garnered the most support for GBP from the macro market. Comments that UK rates may need to move again if the "economy grew in line with projections" helped trading bounce back above 1.9750 and offers into 1.9760/70 and 1.9790/9800 were absorbed into the North American open. Cable is now looking to retrace back to the 1.9875 level, which stands as the daily high May 16th, while EUR/GBP looks to drop back to the double-day low at 0.6781 (May 9th & 10th).
However, news that the MPC want to wait for more data could weigh on the short-term outlook. The BoE want to see how the previous four hikes (to 5.5%) since August had affected the economy. A break above 1.9880 adds pressure to the topside while EUR/GBP bears will be encouraged by a break in the cross below 0.6775 support.
Yen Outlook (23rd May 2007)
Another run to an option barrier level, this time 121.75 plays were removed. Usual knock-out price action with profit taking immediately following the breach of the 121.75 level. U.S investment names were reportedly behind much of the push from levels around 121.65 to 121.78 and the same players were seen off-loading the Dollar all the way down to the early London lows of 121.60-63.
Receding pressure to cut U.S rates and an associated pick up in long term yields has helped support a broad based USD rally this week and with the Yen taking a fresh hit from "carry trade" activity early in the week the path for USD/JPY looks to have been set. The market has the 122.20 2007 high in its sights but for this session we expect to see fairly heavy Japanese exporter sales between 121.80 and 122.00.
Option barriers are touted at 122.00 and 122.25 with large stops tight above. Option related bids touted in the 121.30-40 area, possibly linked to buy backs. European funds have been good buyers of USD/JPY this week and there are rumours of good bids between 121.20 and 121.40.
Receding pressure to cut U.S rates and an associated pick up in long term yields has helped support a broad based USD rally this week and with the Yen taking a fresh hit from "carry trade" activity early in the week the path for USD/JPY looks to have been set. The market has the 122.20 2007 high in its sights but for this session we expect to see fairly heavy Japanese exporter sales between 121.80 and 122.00.
Option barriers are touted at 122.00 and 122.25 with large stops tight above. Option related bids touted in the 121.30-40 area, possibly linked to buy backs. European funds have been good buyers of USD/JPY this week and there are rumours of good bids between 121.20 and 121.40.
Euro Outlook (23rd May 2007)
EUR/USD has nearly completed the retracement of the early European sell-off from 1.3463 to 1.3416. The Euro may have to thank its European neighbor, the Pound, for the support it lent the single currency intraday but sentiment towards the pair remains negative while spot trades below 1.3475.
Offers into the 1.3460's are in focus as NY traders return to their desks while option dealers note expiries at 1.3500 at the NY cut at 14:00 GMT. Looking ahead, US data is sparse in North American trading with weekly mortgage data already in circulation. At 13:30 GMT, the Fed Board of Governors meet in Washington to hold an open meeting on "open-end credit". Following this, more Kroszner comments are set to air around 17:00 GMT.
However, in the wake of the intraday chop it will be flows that determine the EUR/USD directional bias for the near-term. More offers are seen above into 1.3470/75 and 1.3480/85, with stops touted tight above the latter level. Should these be triggered then a run at 1.3500 will be looked for by bulls before some look to exit more speculative long positions.
Offers into the 1.3460's are in focus as NY traders return to their desks while option dealers note expiries at 1.3500 at the NY cut at 14:00 GMT. Looking ahead, US data is sparse in North American trading with weekly mortgage data already in circulation. At 13:30 GMT, the Fed Board of Governors meet in Washington to hold an open meeting on "open-end credit". Following this, more Kroszner comments are set to air around 17:00 GMT.
However, in the wake of the intraday chop it will be flows that determine the EUR/USD directional bias for the near-term. More offers are seen above into 1.3470/75 and 1.3480/85, with stops touted tight above the latter level. Should these be triggered then a run at 1.3500 will be looked for by bulls before some look to exit more speculative long positions.
Tuesday, May 22, 2007
EUR/USD: What a Long, Range Trip Its Been
EUR/USD has spent the last 29 hours lodged between 1.3435 and 1.3475 and after failing recently at 1.3470, looks no closer to a breakout. Looking at the calendar, Thursday looks like the most likely day to spur some renewed action. Ifo is due that day as are US durable goods and jobless claims.
Let's hope we don't have to wait that long. Dealers suspect the usual central bank suspects are helping shore up the bids side in the 1.3435/40 area while stale longs sell into strength at 1.3470. Given the market's entrenched long EUR position, we still think the risks are skewed to the downside, at least from a risk/reward perspective.
More pain would be done to more players on the downside than on the upside, but this is offers no guarantees of profit as it has been the case for quite some time. EUR/USD trades quietly at 1.3460.
Let's hope we don't have to wait that long. Dealers suspect the usual central bank suspects are helping shore up the bids side in the 1.3435/40 area while stale longs sell into strength at 1.3470. Given the market's entrenched long EUR position, we still think the risks are skewed to the downside, at least from a risk/reward perspective.
More pain would be done to more players on the downside than on the upside, but this is offers no guarantees of profit as it has been the case for quite some time. EUR/USD trades quietly at 1.3460.
US TECHS: Commodities Outlook; Gold and Oil
[Gold] has formed a small bear flag following small gains scored the past few days. Sentiment is turning more negative, and risk of a test of major uptrends going back to late 2005 are perceived as more likely. That measure is near $631 today. However, if new lows are not set between now and month end, projected monthly supports for June are forming on either side of $650, and that zone would first have to give way.
As noted yesterday among related markets, silver holds a head and shoulders top pattern which is just another way of saying the former bullish pattern of higher lows and higher highs has failed, leaving a lower high on the charts. Momentum studies have been coiling tightly for over six months in metals, and a bearish resolution could lead gold to the lower $600 band. Trend Intensity remains bearish in gold.
[Oil] scored an outside day up yesterday (higher highs and lower lows but a firm close), though unable to do much with it as seen in today's downturn. Still, most time frame studies (daily/weekly/monthly) are bullish or headed that way, worth keeping in mind. Daily supports in the $65.75-66.00 band are as yet unhit. Trend Intensity is still flat in oil, unable to develop a new signal. Daily resistance is at $67.50-75.
As noted yesterday among related markets, silver holds a head and shoulders top pattern which is just another way of saying the former bullish pattern of higher lows and higher highs has failed, leaving a lower high on the charts. Momentum studies have been coiling tightly for over six months in metals, and a bearish resolution could lead gold to the lower $600 band. Trend Intensity remains bearish in gold.
[Oil] scored an outside day up yesterday (higher highs and lower lows but a firm close), though unable to do much with it as seen in today's downturn. Still, most time frame studies (daily/weekly/monthly) are bullish or headed that way, worth keeping in mind. Daily supports in the $65.75-66.00 band are as yet unhit. Trend Intensity is still flat in oil, unable to develop a new signal. Daily resistance is at $67.50-75.
EUR/USD: Drifting Higher; Mersch Hawkish
EUR/USD is ticking higher after options at 1.3450 expired at 14:00 GMT. Hawkish comments from Luxembourg's Mersch that the ECB is monitoring price stability very closely is helping underpin the pair for a change.
Yesterday, for example, the EUR seemed to ignore the usual string of hawkish rhetoric from the ECB as they prepare the market for a June rate hike. On the flip side, the Fed's Lacker sounded quite upbeat on the US economy on CNBC but maintains worries over stubbornly high core inflation rates. Offers are eyed in the 1.3470/75 area with stops eyed toward 1.3480. Bids are layered down at 1.3440/45 on dips.
Yesterday, for example, the EUR seemed to ignore the usual string of hawkish rhetoric from the ECB as they prepare the market for a June rate hike. On the flip side, the Fed's Lacker sounded quite upbeat on the US economy on CNBC but maintains worries over stubbornly high core inflation rates. Offers are eyed in the 1.3470/75 area with stops eyed toward 1.3480. Bids are layered down at 1.3440/45 on dips.
US ECON: Richmond Fed Shows Little Growth in May
The Richmond Fed s manufacturing conditions survey showed little improvement in May. Contraction in factory activity is still persistent though expectations six months hence were higher. In the service sector conditions survey, revenue grew and retail sales inched up though a big drop in big-ticket sales.
The manufacturing survey index was down to -10 from -11 between April and May. Shipments index gained 8 points to -7 while the new orders pulled back two points to -13. Job index dropped three points to -9 while the wages index jumped eight points to 11. Average workweek also improved five points to -9.
Raw material prices increase at an average annual rate of 2.62% in May, up from 2.23% in April. Finished goods rose at a 1.5%,AR from 0.94%, AR in April. Respondents expected prices paid to rise in the next six months and prices received to slow.
Revenue growth bounced back at a better pace in May, up to 7 from 5 in April. Retail sales rose a point to 0. Revenue for non-retail services was up four points at 12. Services prices rose to an annual rate of 0.98% vs. 0.88%, AR in April while retail prices dropped. Respondents expected a rise in all prices in the next six months.
The manufacturing survey index was down to -10 from -11 between April and May. Shipments index gained 8 points to -7 while the new orders pulled back two points to -13. Job index dropped three points to -9 while the wages index jumped eight points to 11. Average workweek also improved five points to -9.
Raw material prices increase at an average annual rate of 2.62% in May, up from 2.23% in April. Finished goods rose at a 1.5%,AR from 0.94%, AR in April. Respondents expected prices paid to rise in the next six months and prices received to slow.
Revenue growth bounced back at a better pace in May, up to 7 from 5 in April. Retail sales rose a point to 0. Revenue for non-retail services was up four points at 12. Services prices rose to an annual rate of 0.98% vs. 0.88%, AR in April while retail prices dropped. Respondents expected a rise in all prices in the next six months.
GBP/USD: Offers Touted at 1.9750, MPC Minutes Tomorrow
Sell interest is touted at 1.9750, four pips above today's intra-day high. Further offers are tipped at 1.9780, a pip above last Friday's peak. Sterling support points include 1.9720 (today's Asian session top), 1.9702 (today's Asian session base) and 1.9677 (yesterday's six-week low).
Minutes from the May 9/10 BoE MPC meeting will be published at 08:30GMT tomorrow (Wednesday). These will reveal if the decision to hike the UK base rate by 25bp to 5.5% was unanimous. Blanchflower is the most likely dissenter, having voted against the 25bp rate rises delivered in January, last November and last August. The minutes will also show if anyone wanted to up the UK base rate by 50bp, a move advocated by four members of the "Shadow" MPC.
Besley and Sentance voted in favour of a 25bp hike in April. Last week's quarterly BoE inflation report hinted at a further 25bp UK base rate increase. The consensus expectation is that the UK base rate will be raised to 5.75 pct in August.
Minutes from the May 9/10 BoE MPC meeting will be published at 08:30GMT tomorrow (Wednesday). These will reveal if the decision to hike the UK base rate by 25bp to 5.5% was unanimous. Blanchflower is the most likely dissenter, having voted against the 25bp rate rises delivered in January, last November and last August. The minutes will also show if anyone wanted to up the UK base rate by 50bp, a move advocated by four members of the "Shadow" MPC.
Besley and Sentance voted in favour of a 25bp hike in April. Last week's quarterly BoE inflation report hinted at a further 25bp UK base rate increase. The consensus expectation is that the UK base rate will be raised to 5.75 pct in August.
USD/JPY: Option Maturities Helping to Contain Price Action
Numerous option maturities on USD/JPY this morning are helping to contain price action with strikes at 121.00, 121.05, 121.10, 121.20, 121.30, 121.35, 121.40 and 121.50. USD/JPY currently trades at 121.41, slightly down from morning opening levels.
The interest in options is seen tied to the U.S.-China talks with a good deal of speculation that has emerged that the discussions will not go as well as hoped. So far, Tsy Paulson's this morning have guardedly attacked China stating that Americans are impatient with China and that the China talks are facing skepticism. This mirrors the sense of discord that the market is expecting from the discussions.
US yields have edged off morning highs back towards 4.79% on the ten-year bond, also tempering USD/JPY gains. The US two-year spread over JGBs is currently at 393 bp, little changed from yesterday but at the top of the recent 365-395 bp range that has contained recent dealings.
The interest in options is seen tied to the U.S.-China talks with a good deal of speculation that has emerged that the discussions will not go as well as hoped. So far, Tsy Paulson's this morning have guardedly attacked China stating that Americans are impatient with China and that the China talks are facing skepticism. This mirrors the sense of discord that the market is expecting from the discussions.
US yields have edged off morning highs back towards 4.79% on the ten-year bond, also tempering USD/JPY gains. The US two-year spread over JGBs is currently at 393 bp, little changed from yesterday but at the top of the recent 365-395 bp range that has contained recent dealings.
EUR/USD: Having Trouble Getting Out of Its Own Way
EUR/USD finds itself in moribund ranges, orbiting 1.3450 with little to inspire fresh direction. Dealers are actively awaiting the Richmond Fed survey, a sign of how desperate the market is for a catalyst. This third-tier release is usually good for a yawn, but not much else.
1.3450 expiries this morning will dominate the price action over the next 30 minutes but dealers fear we may not stray far even when they roll off at 14:00 GMT. Just hitting the wires now are headlines from Italian PM Prodi supporting a two-speed EU if there is no deal on an EU constitution. We can only hope that brings with it a two-speed EUR.
1.3450 expiries this morning will dominate the price action over the next 30 minutes but dealers fear we may not stray far even when they roll off at 14:00 GMT. Just hitting the wires now are headlines from Italian PM Prodi supporting a two-speed EU if there is no deal on an EU constitution. We can only hope that brings with it a two-speed EUR.
FOREX: ECB Reserves Rise EUR800 mln in May 18 Week
ECB reserves have risen EUR800 mln in the week of May 18th to EUR146.3 bln, up from EUR144.7 bln at the March end quarterly revaluation. Gold reserves have declined by EUR280 mln due to sales by three Eurosystem central banks. Gold reserves have now declined for 130 out of the last 136 weeks.
Swiss Outlook (22nd May 2007)
The early European dip saw USD/CHF traders attempt to correct the Dollar strength from yesterday. However, spot failed just shy of its first technical support (the 38.2% Fibo of the rally from 1.2245 to 1.2330) and the pair then bounced. Spot worked back into the 1.23's and offers into 1.2310/15 were soon absorbed as the pair attempts to retest the 1.2332 high from yesterday.
The failure to close above the 200-Day line at 1.2320 added some weight to the downside but should the topside stay in focus and a run towards 1.2350 be looked for then a positive close above this level should be witnessed.
Having failed to sustain the break into the 1.66's yesterday [EUR/CHF] was sold back to 1.6545. Overnight, the cross consolidated the pullback with 1.6555/75 worked. European trading has extended this range slightly, to 1.6550/75, but the price still remains steady near the 1.6565 mark.
Weekly ICSC/UBS Chain Store and Redbook Retail Sales are released early in NorAm trading. However, the attention rests on the 14:00 GMT Richmond May Fed data and the Bernanke and Lacker comments at 22:00 & 23:30 GMT.
The failure to close above the 200-Day line at 1.2320 added some weight to the downside but should the topside stay in focus and a run towards 1.2350 be looked for then a positive close above this level should be witnessed.
Having failed to sustain the break into the 1.66's yesterday [EUR/CHF] was sold back to 1.6545. Overnight, the cross consolidated the pullback with 1.6555/75 worked. European trading has extended this range slightly, to 1.6550/75, but the price still remains steady near the 1.6565 mark.
Weekly ICSC/UBS Chain Store and Redbook Retail Sales are released early in NorAm trading. However, the attention rests on the 14:00 GMT Richmond May Fed data and the Bernanke and Lacker comments at 22:00 & 23:30 GMT.
Sterling Outlook (22nd May 2007)
Minutes from the May 9/10 BoE MPC meeting will be published at 08:30GMT tomorrow. These will reveal if the decision to hike the UK base rate by 25bp to 5.5% was unanimous. Blanchflower is the most likely dissenter, having voted against the 25bp rate rises delivered in January, last November and last August.
The minutes will also show if anyone wanted to up the UK base rate by 50bp, a move advocated by four members of the "Shadow" MPC. Model fund buying helped inflate GBP/USD to an early Europe intra-day high of 1.9732. The latter level also marks the peak since yesterday's six-week low of 1.9677. Offers are tipped at 1.9740, 1.9750 and 1.9780. 1.9702 (today's Asian session base) is a pre-1.9677 support point.
Touted bear targets below include 1.9660, 1.9640, 1.9590, 1.9565 and 1.9510. Tripped stops below 0.6823 (yesterday's low) have helped depress EUR/GBP to eight-day lows a fraction under 0.6817. An estimated E150mn 0.6815 option strike rolls off on Thursday. An estimated E250mn 0.6850 option strike expires tomorrow. There is another 0.6850 expiry Friday.
The minutes will also show if anyone wanted to up the UK base rate by 50bp, a move advocated by four members of the "Shadow" MPC. Model fund buying helped inflate GBP/USD to an early Europe intra-day high of 1.9732. The latter level also marks the peak since yesterday's six-week low of 1.9677. Offers are tipped at 1.9740, 1.9750 and 1.9780. 1.9702 (today's Asian session base) is a pre-1.9677 support point.
Touted bear targets below include 1.9660, 1.9640, 1.9590, 1.9565 and 1.9510. Tripped stops below 0.6823 (yesterday's low) have helped depress EUR/GBP to eight-day lows a fraction under 0.6817. An estimated E150mn 0.6815 option strike rolls off on Thursday. An estimated E250mn 0.6850 option strike expires tomorrow. There is another 0.6850 expiry Friday.
Yen Outlook (22nd May 2007)
USD/JPY remained very much bid in Asia, holding in a 121.40-57 range and not far from the 121.63 high seen overnight. Offers remain topside ahead of option barriers at 121.75 and 122.00 and also from Japanese exporters but the bias looks to remain up with USD still generally bid and specs looking to push the market above 122.00 and 122.20, the spike high on January 29 and high of the year.
A break above would be very bullish technically, perhaps taking USD/JPY up as high as the 125-126 level, highs not seen since December '02. Such a move would immediately target more option barriers tipped at 122.50, 123.00 and more trailing up to 127.00. Bids remain thick below ahead of large Japanese importer settlement at month-end, more investment trust launches this week and next (some Y200 bln or so is seen this week) and a rash of samurai launches totaling some Y100 bln near term.
Importers in particular may be forced to pay up. EUR/JPY and other JPY crosses remain better offered on the back of shifts in carry trade plays favoring LATAM and CAD but remain essentially bid on dips. EUR/JPY is heavy ahead of 164.00 option barriers.
A break above would be very bullish technically, perhaps taking USD/JPY up as high as the 125-126 level, highs not seen since December '02. Such a move would immediately target more option barriers tipped at 122.50, 123.00 and more trailing up to 127.00. Bids remain thick below ahead of large Japanese importer settlement at month-end, more investment trust launches this week and next (some Y200 bln or so is seen this week) and a rash of samurai launches totaling some Y100 bln near term.
Importers in particular may be forced to pay up. EUR/JPY and other JPY crosses remain better offered on the back of shifts in carry trade plays favoring LATAM and CAD but remain essentially bid on dips. EUR/JPY is heavy ahead of 164.00 option barriers.
Euro Outlook (22nd May 2007)
The Euro suffered in Europe as speculators bought on the rumor that the latest ZEW would be 30.0 but sold when in fact the headline came in close to consensus at 24.0. 1.3435 is back in focus but bids remain in play. Technically, EUR/USD failed to sustain its break above the initial retracement point of 1.3473.
The 1.3476 European high removed the 38.2% Fibo of 1.3530 to 1.3437 with the 61.8% level at 1.3494 now eyed above. This failure should add weight to the downside and a return towards 1.3380 is now eyed by many. However, one German name does not expect the pair to break below this level, instead they foresee EUR/USD building a longer-term base here. US data in North American trading sees early weekly data from ICSC/UBS on Chain Store Sales with Redbook Retail Sales quickly following.
However, the attention rests on the 14:00 GMT Richmond May Fed data and the Bernanke and Lacker comments set for 22:00 & 23:30 GMT respectively. The ECB's Mersch is set to talk at 13:00 GMT but having seen various ECB comments this week already talk up vigilance there may be little to be added to this argument at present.
The 1.3476 European high removed the 38.2% Fibo of 1.3530 to 1.3437 with the 61.8% level at 1.3494 now eyed above. This failure should add weight to the downside and a return towards 1.3380 is now eyed by many. However, one German name does not expect the pair to break below this level, instead they foresee EUR/USD building a longer-term base here. US data in North American trading sees early weekly data from ICSC/UBS on Chain Store Sales with Redbook Retail Sales quickly following.
However, the attention rests on the 14:00 GMT Richmond May Fed data and the Bernanke and Lacker comments set for 22:00 & 23:30 GMT respectively. The ECB's Mersch is set to talk at 13:00 GMT but having seen various ECB comments this week already talk up vigilance there may be little to be added to this argument at present.
Monday, May 21, 2007
USD/JPY: Dip Friday But Bids Solid, Importers, Carry Trades, G8
USD/JPY traded down from a high of 121.39 in London to a low of 120.69 on Friday on the back of Chinese measures to cool down its economy more (tightening of monetary policy) and widening of the Chinese yuan trading band. It has come back strong however on the back of fresh interest in carry trades and reports that the German FinMin was not concerned over current EUR/JPY levels.
The one-yen plus rally in EUR/JPY helped USD/JPY regain the 121 handle. A low VIX index and low option volatility point to very low risk aversion and continuing demand for JPY-funded carry trades. USD/JPY remained relatively bid going into the New York close, consolidating on 121. The prognosis may be for more yen weakness this week.
Asian bourses are generally expected to trade soggy after the Chinese measures but not provoke any major rise in risk aversion. Japanese importers are likely to be good buyers from this week as well as month-end settlements approach and with USD/JPY at significantly higher levels than last month. Dips will likely be bought aggressively, limiting the downside.
Topside, offers remain from Japanese exporters and option players defending 121.50 barriers. With specs eyeing the upside, it may be only a matter of time before these are history. More barriers are eyed above at 121.75 and 122.00, however. USD/JPY currently trades 121.14/17.
The one-yen plus rally in EUR/JPY helped USD/JPY regain the 121 handle. A low VIX index and low option volatility point to very low risk aversion and continuing demand for JPY-funded carry trades. USD/JPY remained relatively bid going into the New York close, consolidating on 121. The prognosis may be for more yen weakness this week.
Asian bourses are generally expected to trade soggy after the Chinese measures but not provoke any major rise in risk aversion. Japanese importers are likely to be good buyers from this week as well as month-end settlements approach and with USD/JPY at significantly higher levels than last month. Dips will likely be bought aggressively, limiting the downside.
Topside, offers remain from Japanese exporters and option players defending 121.50 barriers. With specs eyeing the upside, it may be only a matter of time before these are history. More barriers are eyed above at 121.75 and 122.00, however. USD/JPY currently trades 121.14/17.
USD/JPY: Bids Now Eyed at Levels of 121.10-25
USD/JPY is consolidating in a tight range around 121.45-60 this morning with the lack data releases draining the market of fresh impetus. Fresh buying interest is now said to be emerging from 121.25 down to 121.20 in the wake of today's rally. US bond yields are edging higher to 4.816% after yields hit the highest in three months on Friday, and continues to support the USD/JPY.
The US yield spread over JGBs is holding at 393 bp and the upper end of the recent 365-395 bp range. Of note was the report in the Nikkei on the weekend that only Toyota Motor and Mitsubishi Motor would have seen a profit increase in the last fiscal year if it had not been for the continued weakness in the JPY against the USD and the EUR. The weak JPY was said to have increased automaker profits by Y610 bln during the year. USD/JPY currently trades at 121.53.
The US yield spread over JGBs is holding at 393 bp and the upper end of the recent 365-395 bp range. Of note was the report in the Nikkei on the weekend that only Toyota Motor and Mitsubishi Motor would have seen a profit increase in the last fiscal year if it had not been for the continued weakness in the JPY against the USD and the EUR. The weak JPY was said to have increased automaker profits by Y610 bln during the year. USD/JPY currently trades at 121.53.
EUR/USD: Rate Differentials Remain more USD Supportive
Interest rate differentials between US Treasuries and benchmark German bunds widened quite a bit last week as the anticipation of a Fed rate cut was once again dashed by firmer US data. They maintain much of those recent gains, with spreads on 10-year paper now yielding 49 bp more in the US than in Europe, up from 41 bp in the middle of last week.
Gobs of corporate paper are coming to market this week in the US and will likely find willing buyers as the world remains awash in both USD and liquidity in general. On an outright basis, US yields are at their highest levels in the last three months. Dealers are targeting 4.90% in the 10-year note in the next few weeks. It now yields 4.81. EUR/USD trades just above session lows, at 1.3441.
Gobs of corporate paper are coming to market this week in the US and will likely find willing buyers as the world remains awash in both USD and liquidity in general. On an outright basis, US yields are at their highest levels in the last three months. Dealers are targeting 4.90% in the 10-year note in the next few weeks. It now yields 4.81. EUR/USD trades just above session lows, at 1.3441.
EUR/USD: Edging Back toward Lows; Bounces Modest
EUR/USD bounces have been quite modest, only to the mid-1.3450s as the market consolidates a sharp sell-off from early in the session. There has been lots of grousing from New York traders who sold EUR/USD on Friday after the Chinese tightening knocked EUR/JPY briefly lower only to be stopped out late Friday morning.
Walking into the office Monday morning and seeing EUR/USD at 1.3440 is too much to bear. 1.3425 is next support of note with another modest support at 1.3410. 1.3450 vanilla expiries are noted today as well as 1.3425s. EUR/USD trades at 1.3443.
Walking into the office Monday morning and seeing EUR/USD at 1.3440 is too much to bear. 1.3425 is next support of note with another modest support at 1.3410. 1.3450 vanilla expiries are noted today as well as 1.3425s. EUR/USD trades at 1.3443.
Swiss Outlook (21st May 2007)
The Swiss Franc continues to move in a direction that is geographically opposite to the path local fundamentals suggest the unit should be moving. Overnight and the CHF has hit another all-time low against the Euro while USD/CHF broke above the 200-Day moving average line at 1.2320 amid the late European morning Dollar strength.
The two may not have occurred in tandem, in fact while EUR/CHF weakened USD/CHF traded steady around 1.2285 and when USD/CHF rallied EUR/CHF was pushed back below 1.6600, but the signals are there that the CHF continues to struggle under the global weight of the carry trade. EUR/CHF may have erased 1.66 option barriers, en-route to the new 1.6615 highs, but the cross failed to sustain the gains.
Domestic traders saw Swiss combined price data released today (April +0.9% M/M & +2.6% Y/Y) but their attentions are focused on the impending Swiss KoF Leading Indicator data due for release later this week. Local data also notes employment and trade balance data on the horizon while SNB member Jordan is scheduled to speak in Basel on Thursday.
The two may not have occurred in tandem, in fact while EUR/CHF weakened USD/CHF traded steady around 1.2285 and when USD/CHF rallied EUR/CHF was pushed back below 1.6600, but the signals are there that the CHF continues to struggle under the global weight of the carry trade. EUR/CHF may have erased 1.66 option barriers, en-route to the new 1.6615 highs, but the cross failed to sustain the gains.
Domestic traders saw Swiss combined price data released today (April +0.9% M/M & +2.6% Y/Y) but their attentions are focused on the impending Swiss KoF Leading Indicator data due for release later this week. Local data also notes employment and trade balance data on the horizon while SNB member Jordan is scheduled to speak in Basel on Thursday.
Sterling Outlook (21st May 2007)
Tripped stops under 1.9700 helped depress cable to a six-week low of 1.9680 late in the London morning, amid across-the-board USD demand. Further stops were previously tipped sub-1.9680. Touted bear targets below include 1.9660, 1.9590 and 1.9510. 1.9700 (Friday's floor) is now a resistance level.
Upper obstacles include 1.9736 (today's Asian session base), 1.9756 (today's Asian session peak) and 1.9779 (Friday's high). 1.9750, 1.9770 and 1.9775 option strikes roll off at today's NY cut (14:00GMT). In a Sunday Times article headlined "Migrants create UK job market slack", David Smith writes that the ILO measure of UK unemployment could be approaching 7% of the workforce by the time of the next UK general election, based on recent trends.
The next UK general election is expected in May 2009. UK April annualized money supply growth came in at a way above-forecast 13.3%. A 12.4% rise was expected. Minutes from the May 9/10 BoE MPC meeting will be published on Wednesday (May 23).
Upper obstacles include 1.9736 (today's Asian session base), 1.9756 (today's Asian session peak) and 1.9779 (Friday's high). 1.9750, 1.9770 and 1.9775 option strikes roll off at today's NY cut (14:00GMT). In a Sunday Times article headlined "Migrants create UK job market slack", David Smith writes that the ILO measure of UK unemployment could be approaching 7% of the workforce by the time of the next UK general election, based on recent trends.
The next UK general election is expected in May 2009. UK April annualized money supply growth came in at a way above-forecast 13.3%. A 12.4% rise was expected. Minutes from the May 9/10 BoE MPC meeting will be published on Wednesday (May 23).
Yen Outlook (21st May 2007)
New record lows for the Japanese unit vs the EUR and continued weakness vs the Dollar as the high yield markets move further ahead. With no undue concern from the weekend meeting of G8 finance ministers the market has felt comfortable in pushing the more risky currencies higher at a cost to the Yen.
The China factor proved to have a fleeting impact on the market with the three pronged policy tightening leading to calmer rather than volatile price action in the Asian region. The fact that Asian and Western stock markets absorbed the China rate news so well does not bode well for the Yen, which will continue to be used as a funding vehicle for the carry trade. USD/JPY has also drawn support from strong importer Dollar demand as the month draws near to its close.
The bids reportedly run from 121.10 down through 120.70. On the offer side the 121.50 option barriers have gone and 121.60 highs recorded. Exporter offers are reportedly mixed in with stops above 121.65. Into London midday and Dollar demand took over from carry trade demand and EUR/JPY consequently followed EUR/USD lower. The cross falling from 163.94 to 163.41.
The China factor proved to have a fleeting impact on the market with the three pronged policy tightening leading to calmer rather than volatile price action in the Asian region. The fact that Asian and Western stock markets absorbed the China rate news so well does not bode well for the Yen, which will continue to be used as a funding vehicle for the carry trade. USD/JPY has also drawn support from strong importer Dollar demand as the month draws near to its close.
The bids reportedly run from 121.10 down through 120.70. On the offer side the 121.50 option barriers have gone and 121.60 highs recorded. Exporter offers are reportedly mixed in with stops above 121.65. Into London midday and Dollar demand took over from carry trade demand and EUR/JPY consequently followed EUR/USD lower. The cross falling from 163.94 to 163.41.
Euro Outlook (21st May 2007)
Into the new week and the China, G8 and Kuwaiti news did little to inject fresh volatility into the markets. Instead it was plain old-fashioned flows and stops that did the damage in EUR/USD. Spot initially looked to consolidate just above the 1.35 mark but late in the European morning and the pair nose-dived as sellers triggered stops and follow-through accelerated.
Option barriers at 1.3450 were removed amid the drop with the last layer of stop/loss orders (circa-1.3445) reported behind the fall to the 1-month low at 1.3437. Bears now eye a run at 1.3375 in the short-term. Into North American trading and dealers may at first look to the latest Dollar strength as a signal that the US unit has been positively impacted by the weekend news.
However, this may be a little too simplistic with renewed USD strength by no means sustainable should weak US economic data point to the need for the Fed to consider cutting back interest rates. Also, the lack of US data set for release in NorAm trading should help EUR/USD to consolidate at the lower levels.
Option barriers at 1.3450 were removed amid the drop with the last layer of stop/loss orders (circa-1.3445) reported behind the fall to the 1-month low at 1.3437. Bears now eye a run at 1.3375 in the short-term. Into North American trading and dealers may at first look to the latest Dollar strength as a signal that the US unit has been positively impacted by the weekend news.
However, this may be a little too simplistic with renewed USD strength by no means sustainable should weak US economic data point to the need for the Fed to consider cutting back interest rates. Also, the lack of US data set for release in NorAm trading should help EUR/USD to consolidate at the lower levels.
Saturday, May 19, 2007
EUR/USD: Short-Covering Rally Finally Reaches Crescendo
Dealers (or algos) had to pay up as far as 1.3522 to get back all of their EUR/USD before running into heavy-enough offers to get their fill. Now that shorts are covered, prices have drifted back to 1.3508.
Choppy markets intraday today and during much of this week will likely see most wearily retreat to the sidelines this afternoon. Expect quiet markets between 1.3490 and 1.3520 this afternoon. A similar story unfolded in cable but London highs at 1.9777 held fast. Prices have dipped to 1.9750 and look likely to trade 1.9740/80 for the balance of the session.
Choppy markets intraday today and during much of this week will likely see most wearily retreat to the sidelines this afternoon. Expect quiet markets between 1.3490 and 1.3520 this afternoon. A similar story unfolded in cable but London highs at 1.9777 held fast. Prices have dipped to 1.9750 and look likely to trade 1.9740/80 for the balance of the session.
USD/CHF: Approaches Session Lows; Cross Cushions Pullback
USD/CHF approached session lows at 1.2245 before staging a mild bounce. Heavy buying of EUR/CHF is helping cushion the blow in USD/CHF as dealers rush to reestablish carry trades after many bailed out this morning after the aggressive steps by China to rein in their economy and to appease trade partners before the G8 and the Washington summit next week. Small offers are seen at 1.2257/60 with more at 1.2275/80 on rebounds. A break of 1.2245 targets 1.2230/35 and 1.2195/00.
EUR/USD: The Squeeze is On
EUR/USD is ramping higher late in the European session as carry trades are snapped up, catching EUR shorts in a vise, or more appropriately, a bear-trap. Stops are tripping off above the 1.3510 intraday highs in Europe but offers reside in the 1.3520/25 region, dealers report. A mix of stops and offers is seen in the 1.3530/50 window. EUR/USD trades at 1.3515.
GBP/USD: Recouping Data-Led Losses as Carry Trades Soar
Cable has just about retraced all its retail sales-led losses from this morning and is rising rapidly on short-covering as carry trades lead the markets by the nose. Risk aversion spiked after the Chinese rate and currency band moves this morning but it has been ebbing all morning as equity markets took the news in stride.
Strong stocks tend to move hand-in-hand with a weak USD and today is no exception. 1.9777 session highs are within striking distance and stops are poised at 1.9780 and above, dealers say. A break would target the 1.9805 area. Cable trades at 1.9763.
Strong stocks tend to move hand-in-hand with a weak USD and today is no exception. 1.9777 session highs are within striking distance and stops are poised at 1.9780 and above, dealers say. A break would target the 1.9805 area. Cable trades at 1.9763.
USD/JPY: Bullish Trend Signal Jumps Two Notches
The bullish trend intensity signal for USD/JPY has jumped two notches on back of yesterday's rally, rising to 19. The EUR/USD trend signal is neutral at 18. The GBP/USD trend signal is neutral at 17.
The USD/CHF trend signal is bullish, advancing to 11. The EUR/JPY trend signal is neutral at 30 while the EUR/GBP trend signal is bullish but has now stalled for the third session at 13.
EUR/GBP has been strongly supported by M&A flows with Thomson Financial data showing that year-to-date net flows into the Eurozone from the UK rising sharply to $139 bln between Apr 20 and May 15 from only $26 bln year-to-date to Apr 20th. The proprietary trend intensity signal is updated each trading day after the NY close.
The USD/CHF trend signal is bullish, advancing to 11. The EUR/JPY trend signal is neutral at 30 while the EUR/GBP trend signal is bullish but has now stalled for the third session at 13.
EUR/GBP has been strongly supported by M&A flows with Thomson Financial data showing that year-to-date net flows into the Eurozone from the UK rising sharply to $139 bln between Apr 20 and May 15 from only $26 bln year-to-date to Apr 20th. The proprietary trend intensity signal is updated each trading day after the NY close.
Swiss Outlook (18th May 2007)
The Franc traded on a steady footing into the NorAm open despite the PBOC news prompting broader market volatility. As FX markets digest their Chinese lunch some note that USD/CHF trades on an even-keel as the broader USD bid-tone is offset by an increase in safe-haven flows that have propped the Swissie.
Offers into 1.2280/85 cap the topside ahead of a test of 1.2300 while bids into 1.2245 prop on dips with local traders once more looking to EUR/CHF to add intraday chop. The cross has failed to set another fresh record high thus far today and the option barriers up at 1.6600 remain in play. Into North American trading and Michigan Sentiment data is set for release at 14:00 GMT.
Had the deluge of Chinese news not hit the screens then this would have been eyed as the key short-term event-risk, however, in the wake of the PBOC news and potential further Yuan gains in the pipeline the market will be looking elsewhere. US fundamentals should not be overlooked and the 14:30 GMT weekly ECRI data should keep one-eye on the US with more Moskow comments then due out of Chicago around 16:45 GMT.
Offers into 1.2280/85 cap the topside ahead of a test of 1.2300 while bids into 1.2245 prop on dips with local traders once more looking to EUR/CHF to add intraday chop. The cross has failed to set another fresh record high thus far today and the option barriers up at 1.6600 remain in play. Into North American trading and Michigan Sentiment data is set for release at 14:00 GMT.
Had the deluge of Chinese news not hit the screens then this would have been eyed as the key short-term event-risk, however, in the wake of the PBOC news and potential further Yuan gains in the pipeline the market will be looking elsewhere. US fundamentals should not be overlooked and the 14:30 GMT weekly ECRI data should keep one-eye on the US with more Moskow comments then due out of Chicago around 16:45 GMT.
Sterling Outlook (18th May 2007)
Cable tumbled by over half-a-cent after the 08:30GMT disclosure of April's disappointing UK retail sales numbers. These fell by 0.1% m/m, to stand 4.2% higher on an annualized basis. Retail sales were forecast +0.6% m/m, +4.7% y/y. 1.9705 marks the five-week session low-to-date.
The disappointing UK retail sales figures are bad news for hawks touting a year-end base rate of 6.0 pct. The consensus expectation is that the UK base rate will be hiked by 25bp to 5.75% in August.
Flagged sell stops below 1.9700 could spur fresh downward momentum if tripped. More stops reportedly reside sub-1.9680. 1.9732 (yesterday's low) is now a resistance level. Upper obstacles include 1.9750 and 1.9780.
EUR/GBP rallied to intra-day highs circa 0.6852 after the UK retail sales release. 0.6825 was the pre-data low. Offers are touted at 0.6855/60.
May's preliminary Michigan Sentiment index will be unveiled at 14:00GMT. Forecast: 86.0. Next week's key UK event risk is Wednesday's publication of minutes from the May 9/10 BoE MPC meeting.
The disappointing UK retail sales figures are bad news for hawks touting a year-end base rate of 6.0 pct. The consensus expectation is that the UK base rate will be hiked by 25bp to 5.75% in August.
Flagged sell stops below 1.9700 could spur fresh downward momentum if tripped. More stops reportedly reside sub-1.9680. 1.9732 (yesterday's low) is now a resistance level. Upper obstacles include 1.9750 and 1.9780.
EUR/GBP rallied to intra-day highs circa 0.6852 after the UK retail sales release. 0.6825 was the pre-data low. Offers are touted at 0.6855/60.
May's preliminary Michigan Sentiment index will be unveiled at 14:00GMT. Forecast: 86.0. Next week's key UK event risk is Wednesday's publication of minutes from the May 9/10 BoE MPC meeting.
Yen Outlook (18th May 2007)
Choppy price action from the European open with early trade seeing the Yen taken to 120.39 and 163.89 lows vs USD and EUR respectively. Hedge fund demand for carry trades and the removal of option barriers and straight vanilla strikes providing the scope for USD/JPY strength.
Exporter offers took the edge off spot and cross and as both markets were pulling lower news that China had widened its Yuan trading band by 0.5% and hiked the one-year lending rate to 6.57% from 6.39% and the one-year deposit rate to 3.06% from 2.79% added weight to the Yen rally. USD/JPY dipped under 121.00 to reach 120.70 and EUR/JPY reached 162.63. Position adjusting came to the Dollar's rescue and the market lifted back to 121.02 before relaxing into consolidation at 120.85.
The 121.50 and 164.00 option barriers remain in place and there is talk of sizeable 121.00 and 121.25 USD/JPY strikes rolling off at today's New York cut. Looking ahead, given the sizeable amount of Yen shorts still in the market, risk of further unwinding next week can be expected. The impact on the "carry trade" could provide the direction for the week as a whole.
Exporter offers took the edge off spot and cross and as both markets were pulling lower news that China had widened its Yuan trading band by 0.5% and hiked the one-year lending rate to 6.57% from 6.39% and the one-year deposit rate to 3.06% from 2.79% added weight to the Yen rally. USD/JPY dipped under 121.00 to reach 120.70 and EUR/JPY reached 162.63. Position adjusting came to the Dollar's rescue and the market lifted back to 121.02 before relaxing into consolidation at 120.85.
The 121.50 and 164.00 option barriers remain in place and there is talk of sizeable 121.00 and 121.25 USD/JPY strikes rolling off at today's New York cut. Looking ahead, given the sizeable amount of Yen shorts still in the market, risk of further unwinding next week can be expected. The impact on the "carry trade" could provide the direction for the week as a whole.
Euro Outlook (18th May 2007)
Into North American trading and EUR/USD finds itself close to the 1.3465 low from May 10th & 11th. Spot was forced lower amid the late European morning sell-off that was induced by the late PBOC statement that they were widening their USD/CNY trading band, hiking rates and raising their minimum reserve requirements.
The band was increased from 0.3% to 0.5% to "increase flexibility in the Yuan FX rates" according to the PBOC statement. Dealers now expect the weekend G8 meeting to endorse the move but there is scope for some to call for more to be done as global imbalances continue to require moderation. Bids in EUR/USD are said to trail back to the 1.3450/55 area with central bank and option related buyers noted ahead of the 1.3450 structures.
On the topside, only a break above 1.3500/10 will see follow-through generated with stops still tipped to reside above 1.3510 and again above 1.3550. US data today comes in the form of 14:00 GMT Michigan Sentiment data and the 14:30 GMT weekly ECRI release while comments from Moskow are expected from Chicago around 16:45 GMT. Then the attention then turns back to Potsdam.
The band was increased from 0.3% to 0.5% to "increase flexibility in the Yuan FX rates" according to the PBOC statement. Dealers now expect the weekend G8 meeting to endorse the move but there is scope for some to call for more to be done as global imbalances continue to require moderation. Bids in EUR/USD are said to trail back to the 1.3450/55 area with central bank and option related buyers noted ahead of the 1.3450 structures.
On the topside, only a break above 1.3500/10 will see follow-through generated with stops still tipped to reside above 1.3510 and again above 1.3550. US data today comes in the form of 14:00 GMT Michigan Sentiment data and the 14:30 GMT weekly ECRI release while comments from Moskow are expected from Chicago around 16:45 GMT. Then the attention then turns back to Potsdam.
Friday, May 18, 2007
CHINA: 2007 C/A Surplus Expected to Reach 12.8% of GDP
Standard Chartered global research has released a paper this afternoon saying they have increased their 2007 C/A forecast to USD400bln or 12.8% of GDP. They say the massive increase is mostly driven by the goods surplus which they expect to rise by 70%. SC says these are the "biggest surpluses in dollar terms the world has ever seen".
SC forecast is significantly higher than that of the World Bank (8.3% of GDP), the IMF (10% of GDP) and as far as they can tell, bigger than any other commentator is suggesting. SC says the forecast has "huge implications" and that the pressure will be on for "more rate hikes and gravity defying reserve requirement" adjustments. They suggest RRR of 15%, even 20% are possible.
SC forecast is significantly higher than that of the World Bank (8.3% of GDP), the IMF (10% of GDP) and as far as they can tell, bigger than any other commentator is suggesting. SC says the forecast has "huge implications" and that the pressure will be on for "more rate hikes and gravity defying reserve requirement" adjustments. They suggest RRR of 15%, even 20% are possible.
NEWS: Japan EcoMin Ota - GDP Confirms Recovery Continuing
Over Reuters. The EcoMin notes some weakness in production but that the trend remains up. She is especially pleased with the pick up in personal consumption. On CAPEX, Ms Ota says more data must be seen is current weakness becomes a trend. On inflation, she notes that deflationary tendencies continue.
GBP/USD: Poised Above Key Support
The GBP/USD trades towards the top of a 1.9760/80 range this morning, buoyed by a generally softer USD in early Asia and JPY weakness, with the GBP/JPY climbing from 238.65 to test 239.00. The hourly technical studies are also highly oversold this morning in Asia, which will provide support, as they unwind.
The Cable is poised above daily range support at 1.9750/60, with the 38.2% of this year's range at 1.9770; there are stops below 1.9750 and a close below targets a move to 1.9600. People are expecting offers at 1.9815/25 to cap the bounce in Asia.
The UK press carry stories on the BoE Inflation Report yesterday, and unanimously favour a rise to 5.75% in the coming months, with the continued risk on the topside, as Governor King stressed that "the main risk is that businesses become more confident of their ability to raise prices and in turn pay higher wages". This stance should provide underlying support for the GBP. The Cable trades 1.9775/78.
The Cable is poised above daily range support at 1.9750/60, with the 38.2% of this year's range at 1.9770; there are stops below 1.9750 and a close below targets a move to 1.9600. People are expecting offers at 1.9815/25 to cap the bounce in Asia.
The UK press carry stories on the BoE Inflation Report yesterday, and unanimously favour a rise to 5.75% in the coming months, with the continued risk on the topside, as Governor King stressed that "the main risk is that businesses become more confident of their ability to raise prices and in turn pay higher wages". This stance should provide underlying support for the GBP. The Cable trades 1.9775/78.
Swiss Outlook (17th May 2007)
As the old song goes, "What a difference a day makes, 24 little hours" This time yesterday the USD lay on the canvas down for the count, and tonight sans the 1.2210-20 stops the buck is surging. USD/CHF opened this morning in New York around 1.2175 with New York traders more than a little surprised.
An overnight surge to new nine year highs in EUR/CHF had changed the playing field for USD/CHF, and forced US traders to re-assess. US data was mixed with an upward bias however traders attribute the dollar surge more to lack of liquidity ahead of tomorrow's European market holidays than anything else. A late clean up of dollar shorts turned into a rout, and when one of the large US commercial banks counseled technical clients to cut all dollar shorts it just got worse.
The high was 1.2247, the close 1.2230. Earlier SNB comments knocked EUR/CHF off its 1.6554 top, and in a magazine interview with Jeanne-Pierre Roth published this afternoon, he re-iterated the risks in the carry trade, and the dichotomy between the state of the economy and the strength of the CHF.
An overnight surge to new nine year highs in EUR/CHF had changed the playing field for USD/CHF, and forced US traders to re-assess. US data was mixed with an upward bias however traders attribute the dollar surge more to lack of liquidity ahead of tomorrow's European market holidays than anything else. A late clean up of dollar shorts turned into a rout, and when one of the large US commercial banks counseled technical clients to cut all dollar shorts it just got worse.
The high was 1.2247, the close 1.2230. Earlier SNB comments knocked EUR/CHF off its 1.6554 top, and in a magazine interview with Jeanne-Pierre Roth published this afternoon, he re-iterated the risks in the carry trade, and the dichotomy between the state of the economy and the strength of the CHF.
Sterling Outlook (17th May 2007)
Cable opened in Asia around 1.9770 and we have seen a range of 1.9760-1.9785 in quiet trading. EUR/GBP opened around .6840 and has been quiet as has GBP/JPY, which opened around 238.75 and has drifted quietly higher throughout the day, peaking so far at 239.10. Order books are bare around current levels, hence the tight ranges. Cable sellers are plentiful around 1.9870-1.9900 and some light buying is seen around 1.9750. Buy orders in EUR/GBP are firm around .6800-10.
Much of the UK press is carrying stories on yesterdays BOE inflation report. A rise to 5.75% is unanimously favoured and further upside risk is seen with Governor King being quoted as saying the main risk is that companies become more confident of their ability to raise prices and in turn pay higher wages.
Such talk should continue to fuel the carry trade flame. Flow data from the MoF shows that Japanese investors were net buyers of Y532.7 bln in foreign bonds in the week ended May 12. The GBP is thought to be one of the major beneficiaries of these new issuances.
Much of the UK press is carrying stories on yesterdays BOE inflation report. A rise to 5.75% is unanimously favoured and further upside risk is seen with Governor King being quoted as saying the main risk is that companies become more confident of their ability to raise prices and in turn pay higher wages.
Such talk should continue to fuel the carry trade flame. Flow data from the MoF shows that Japanese investors were net buyers of Y532.7 bln in foreign bonds in the week ended May 12. The GBP is thought to be one of the major beneficiaries of these new issuances.
Yen Outlook (17th May 2007)
USD/JPY and JPY crosses all looked relatively bid today, especially after slightly weaker than expected Q1 GDP. Against expectations of 0.7% Q/Q and 2.7% annualized rises, rise of 0.6% and 2.4% were seen. From 120.68, USD/JPY moved up to 120.88 but further moves up were again rejected by protection of 121.00 barriers.
More of these barriers are seen expiring today. Stops are eyed above this level. A mix of stops and offers are seen thereafter up to 120.20. A good offer is seen at 121.25. Japanese exporters are obviously amongst those offering. EUR/JPY moved up from 163.21 to 163.55 on the back of the data. EUR heaviness continued to weigh as did talk of European central bank offers around 164.00 and also from option players defending barriers there.
AUD/JPY also bounced from 99.45 to 99.88 on the back of buying from model funds and bargain hunters. This too despite diversification of portfolios out of AUD and into LATAM and Canada. NZD/JPY edged up from 88.44 to 88.70 but remains essentially rangebound in a core 88-89 range. GBP/JPY moved up from 238.70 to the 239.00 level before also steadying.
More of these barriers are seen expiring today. Stops are eyed above this level. A mix of stops and offers are seen thereafter up to 120.20. A good offer is seen at 121.25. Japanese exporters are obviously amongst those offering. EUR/JPY moved up from 163.21 to 163.55 on the back of the data. EUR heaviness continued to weigh as did talk of European central bank offers around 164.00 and also from option players defending barriers there.
AUD/JPY also bounced from 99.45 to 99.88 on the back of buying from model funds and bargain hunters. This too despite diversification of portfolios out of AUD and into LATAM and Canada. NZD/JPY edged up from 88.44 to 88.70 but remains essentially rangebound in a core 88-89 range. GBP/JPY moved up from 238.70 to the 239.00 level before also steadying.
Euro Outlook (17th May 2007)
The EUR/USD opened around 1.3515 in Asia, just above the overnight low at 1.3505 and traded in a 1.3513/1.3532 range consolidating at the lower levels. EUR/JPY demand early on the soft Japanese GDP data supported the pairing and the price action died around midday, as investors wait for the European open.
There are offshore trader stops above 1.3540, with offers at 1.3570/85 likely to cap the bounce, while on the base there are bids at 1.3500, with stops below and 1.3465 is the major support, with stops building under this level. Many analytical pieces have been written in recent days suggesting that the worst has been seen for the U.S. data and that the economic numbers will improve, a view shared by the Fed, so the market seems far more influenced by good news than bad at present and this is developing it's own momentum, though the spectre of Central bank diversification demand remains in the background.
The EUR/JPY traded in a 163.21/55 range, slightly better bid on bargain hunting and the slightly softer Japanese GDP, while the EUR/CHF and the EUR/GBP traded very tight 1.6529/43 and 0.6838/42 ranges respectively.
There are offshore trader stops above 1.3540, with offers at 1.3570/85 likely to cap the bounce, while on the base there are bids at 1.3500, with stops below and 1.3465 is the major support, with stops building under this level. Many analytical pieces have been written in recent days suggesting that the worst has been seen for the U.S. data and that the economic numbers will improve, a view shared by the Fed, so the market seems far more influenced by good news than bad at present and this is developing it's own momentum, though the spectre of Central bank diversification demand remains in the background.
The EUR/JPY traded in a 163.21/55 range, slightly better bid on bargain hunting and the slightly softer Japanese GDP, while the EUR/CHF and the EUR/GBP traded very tight 1.6529/43 and 0.6838/42 ranges respectively.
Wednesday, May 16, 2007
USD/JPY: Remains Bid on Broad USD Gains
Currencies remain in retreat this morning, led by the NZD and the AUD, which is helping to underpin the USD/JPY despite a slide in JPY crosses. USD/JPY is at 120.72/75 with good offers remaining ahead of 121.00 that are capping gains. US stocks have lost earlier gains, helping to weigh on JPY crosses and tempering USD/JPY gains.
In addition, the VIX is slowly grinding higher, another negative for carry trades as well. Many feel that the USD/JPY will remain in a range getting support from JPY crosses when the USD weakens, as well as support when the USD rallies, as it is now. Many feel that any correction now in global markets will benefit the USD as US investors bring their funds home.
Traders note that the comments also weighing on the EUR/JPY have come from a Reuters report from the Japan trade minister who said that it will take time, but Japanese rates will go to levels that dilutes the carry trade impact.
In addition, the VIX is slowly grinding higher, another negative for carry trades as well. Many feel that the USD/JPY will remain in a range getting support from JPY crosses when the USD weakens, as well as support when the USD rallies, as it is now. Many feel that any correction now in global markets will benefit the USD as US investors bring their funds home.
Traders note that the comments also weighing on the EUR/JPY have come from a Reuters report from the Japan trade minister who said that it will take time, but Japanese rates will go to levels that dilutes the carry trade impact.
GBP/USD: Retraces about Two-Thirds of Recent Rally
GBP/USD skidded lower as the USD staged a surprisingly strong rebound late in the London session. Dealers blame profit-taking accelerating after prices once gain stalled in the 1.9870/75 region overnight. The loss of 1.9805 New York lows sent many former cable longs to the sidelines, dropping prices to the 1.9789 level before stabilizing.
A full retracement of yesterday's rally to the 1.9750 area is the near-term risk for cable. On the fundamental front, the MPC"s forecast to a return to 2% CPI levels over the next two-years has undermined cable as it relies on an interest forecast of 5.70%, only 20 bp above present levels. Timing of the next hike from the BOE has grown murky now that inflation has receded back below the 3% danger zone.
A full retracement of yesterday's rally to the 1.9750 area is the near-term risk for cable. On the fundamental front, the MPC"s forecast to a return to 2% CPI levels over the next two-years has undermined cable as it relies on an interest forecast of 5.70%, only 20 bp above present levels. Timing of the next hike from the BOE has grown murky now that inflation has receded back below the 3% danger zone.
USD/CHF: Stops Popped As Bears Bail Out
Having been focused on the stops located between 1.2210-20 for the past three days; the greenback has finally picked up enough oomph to trigger them, hitting a 1.2221 high. Tepid follow through has the bulls second guessing themselves, and lord knows no one feels comfortable being long USD/CHF above 1.2200, so the pair is hovering around 1.2215 as the market tries to make its mind up whether this is just a dollar pop, or whether a trend change is in the offing.
EUR/USD: Drops Out of Bed as 1.3565 Gives Way
Most people thought there was a good chance that EUR/USD would slip to the 1.3530 area if 1.3565 support gave way, but it was a great surprise for it to happen in milliseconds. Unable to rally after hawkish comments from Weber, dealers dumped EUR/USD and EUR/JPY sending both pairs sliding. 1.3525/30 is next support of note; 1.3565/70 should contain bounces.
EUR/USD: Weber Remains Uber-Hawk
Buba President Weber remains ever-hawkish, saying that strong vigilance is required on price risks. A robust economy points to upward price risks and money and credit growth clearly signal risks. Capacity utilization will rise further, he says. No signs of a pause can be gleaned from these comments, to be sure.
EUR/USD is showing little reaction, holding in the low 1.3570s. Three-separate central banks have been spotted buying EUR/USD in the 1.3570 region but bounces are minimal thus far. Stops reside around 1.3560 is support gives way. Support returns at 1.3525/30.
EUR/USD is showing little reaction, holding in the low 1.3570s. Three-separate central banks have been spotted buying EUR/USD in the 1.3570 region but bounces are minimal thus far. Stops reside around 1.3560 is support gives way. Support returns at 1.3525/30.
Swiss Outlook (16th May 2007)
USD/CHF has once again been trapped between a rock and the carry trade. Broader Dollar sentiment helped the price drift to the top of the overnight 1.2140/60 range in Europe but it was the latest EUR/CHF buying that forced the brief push to 1.2167. SNB comments emerged as the cross hit the new all-time highs and as a result of profit-taking in EUR/CHF the pair was quickly depressed back below 1.2160.
Further EUR/CHF volatility is expected to impact the Dollar pair with more offers seen into 1.2180 and 1.2200. The local seller of [EUR/CHF] that kept the pair trading below 1.6530/35 eventually saw their supply absorbed but the new highs at 1.6541 were promptly followed by the Roth comments that saw funds look for the exit.
Looking ahead, US data today kicks off with US Housing Starts at 12:30 GMT followed by a brace of Fed speakers at 13:00 GMT (Plosser and Kroszner). April Industrial Production and capacity data is set for unveiling at 13:15 GMT (+0.3% forecast) with a gap seen before the markets get the Kohn comments at 15:00 GMT. The Dallas speech set for 17:00 GMT concludes the risk-profile for the day.
Further EUR/CHF volatility is expected to impact the Dollar pair with more offers seen into 1.2180 and 1.2200. The local seller of [EUR/CHF] that kept the pair trading below 1.6530/35 eventually saw their supply absorbed but the new highs at 1.6541 were promptly followed by the Roth comments that saw funds look for the exit.
Looking ahead, US data today kicks off with US Housing Starts at 12:30 GMT followed by a brace of Fed speakers at 13:00 GMT (Plosser and Kroszner). April Industrial Production and capacity data is set for unveiling at 13:15 GMT (+0.3% forecast) with a gap seen before the markets get the Kohn comments at 15:00 GMT. The Dallas speech set for 17:00 GMT concludes the risk-profile for the day.
Sterling Outlook (16th May 2007)
Cable dropped to 1.9825 bids after the 09:30GMT publication of May's quarterly BoE inflation report, primarily on the back of comments from Mervyn King. The BoE Governor says if UK wage pressures diminished, it would suggest upside risks to UK CPI had receded (Reuters). Annualized average UK earnings rose by a sub-forecast 4.5% in the three months to March.
The BoE inflation report suggests the UK base rate may need be hiked by another 25bp to 5.75% in Q3, possibly in August. Additional sterling demand is noted at 1.9800. Sub-figure support points include 1.9775, 1.9765 and 1.9750. There is speculation that sovereign demand helped base GBP/USD at one-month lows circa 1.9750 yesterday, post-UK CPI.
1.9841 (pre-BoE inflation report low) is now a resistance level. Upper obstacles include 1.9860 and 1.9875 (early Europe high). Some buy stops are pegged above 1.9880. 1.9905-10 option strikes roll off at 14:00GMT today.
US April housing starts will be unveiled at 12:30GMT. Forecast: 1480k. US April IP and CU numbers ensue at 13:15GMT.
The BoE inflation report suggests the UK base rate may need be hiked by another 25bp to 5.75% in Q3, possibly in August. Additional sterling demand is noted at 1.9800. Sub-figure support points include 1.9775, 1.9765 and 1.9750. There is speculation that sovereign demand helped base GBP/USD at one-month lows circa 1.9750 yesterday, post-UK CPI.
1.9841 (pre-BoE inflation report low) is now a resistance level. Upper obstacles include 1.9860 and 1.9875 (early Europe high). Some buy stops are pegged above 1.9880. 1.9905-10 option strikes roll off at 14:00GMT today.
US April housing starts will be unveiled at 12:30GMT. Forecast: 1480k. US April IP and CU numbers ensue at 13:15GMT.
Yen Outlook (16th May 2007)
The combination of a generally softer USD and the "carry trade" theme has held USD/JPY tight. Tuesday's U.S CPI data gave every indication that price pressures are under control and that a Fed easing later in the year was still a possibility. The data took the edge off the USD and sent EUR/USD higher, which in turn has driven EUR/JPY to new highs of 163.87.
The Yen has also been hit by fresh carry trade activity as risk is clearly back on the menu. USD/JPY has been held just ahead of 120.60 and exporters, real money accounts and central bank activity are in the frame. Talk of Yen repatriation following bond coupon and redemption payments has also impacted. USD/JPY Offers are said to run to 120.60 up to 120.75 and there is further talk of a large 120.75 option barrier.
Other option plays reportedly include a 400 mln 120.00 expiry today and 121.00 barriers. Looking ahead, expect the Yen market to steady ahead of Thursday's Japanese GDP data and the speech from BOJ Governor, Fukui.
The Yen has also been hit by fresh carry trade activity as risk is clearly back on the menu. USD/JPY has been held just ahead of 120.60 and exporters, real money accounts and central bank activity are in the frame. Talk of Yen repatriation following bond coupon and redemption payments has also impacted. USD/JPY Offers are said to run to 120.60 up to 120.75 and there is further talk of a large 120.75 option barrier.
Other option plays reportedly include a 400 mln 120.00 expiry today and 121.00 barriers. Looking ahead, expect the Yen market to steady ahead of Thursday's Japanese GDP data and the speech from BOJ Governor, Fukui.
Euro Outlook (16th May 2007)
The Euro has been supported by both data and cross buying in Europe. EZ CPI and buying in EUR/CHF, JPY & GBP helped underpin the unit and into early NorAm trading and EUR/USD sits near the 1.3600 level. Offers around 1.3625/30 are eyed on the topside while 1.3685 support is seen key to the trend.
Looking ahead, option dealers note further 1.3600 strikes at the NY cut at 14:00 GMT. Add to the equation the 1.3570, 1.3650 and 1.3750 expiry interest and the pair could sit close to a maturity wherever it trade at 14:00 GMT. Stops in EUR/USD are noted below 1.3580, 70 and 60 but traders look to the 1.3630 in the medium-term should the price retain its bullish bias.
US data today kicks off with US Housing Starts at 12:30 GMT followed by a brace of Fed speakers at 13:00 GMT (Plosser and Kroszner). April Industrial Production and capacity data is set for unveiling at 13:15 GMT (+0.3% forecast) with a gap seen before the markets get another central bank double at 15:00 GMT. This comes in the form of Kohn in the Dollar corner and the ECB"s Weber coming out for the Euro. Dallas comments at 17:00 GMT conclude the risk-profile.
Looking ahead, option dealers note further 1.3600 strikes at the NY cut at 14:00 GMT. Add to the equation the 1.3570, 1.3650 and 1.3750 expiry interest and the pair could sit close to a maturity wherever it trade at 14:00 GMT. Stops in EUR/USD are noted below 1.3580, 70 and 60 but traders look to the 1.3630 in the medium-term should the price retain its bullish bias.
US data today kicks off with US Housing Starts at 12:30 GMT followed by a brace of Fed speakers at 13:00 GMT (Plosser and Kroszner). April Industrial Production and capacity data is set for unveiling at 13:15 GMT (+0.3% forecast) with a gap seen before the markets get another central bank double at 15:00 GMT. This comes in the form of Kohn in the Dollar corner and the ECB"s Weber coming out for the Euro. Dallas comments at 17:00 GMT conclude the risk-profile.
EUR/USD: Taking Stock after Reaching 1.3608
EUR/USD is consolidating gains around 1.3600 after reaching highs around 1.3608 after breaking free of its shackles at 1.3565. Dealers note a variety of names being blamed for the topside breakout, with one a well-known hedge fund, another a sovereign account that has recently been helping keep the EUR bottled up in ranges and a third a UK clearing bank. Anyone or all could have been involved. Dealers see a quiet afternoon below the recent peaks in the 1.3615/25 area. 1.3565 is support on pullbacks.
USD/CHF: Bears Bare Their Claws As Greenback Gouged
Just as the market was getting used to a kinder gentler uptrend in USD/CHF that had the pair open the New York session in the rarified atmosphere of 1.2200 the bears evacuated their caves and came pouring down the slopes to massacre the unsuspecting dollar bulls. It was a double whammy, EUR/CHF & USD/CHF sell off which pummeled the poor old greenback and laid waste any nascent plans for a 1.2200 plus revival tomorrow.
Stops at 1.2210 & 20 were not allowed to be toyed with, and anyone standing in the way was summarily executed. The sell off was swift and sharp, from 1.2200 to 1.2125, some profit taking brought it back to flirt with 1.2150, then another sell off rattled that rally, this time the low was 1.2130, and since the pair has traded in an apprehensive 1.2135/42 range.
EUR/CHF collapsed from challenging its eight year high chalked up on May 1st, failing at 1.6535 and falling to 1.6503 and is holding tentatively around 1.6510. SNB intervention fears and technicians selling the topside failure acted as the catalyst. Now the bears are back in control again, and EUR/USD is back above 1.3600 the street seems more purposeful, amazing what a P&L injection can do for the psyche.
Further downside for USD/CHF to be expected, stops at 1.2080 and 1.1995 on the downside - after all this is all old ground. Topside stops at 1.2210 & 20 seem out of reach given current sentiment.
Stops at 1.2210 & 20 were not allowed to be toyed with, and anyone standing in the way was summarily executed. The sell off was swift and sharp, from 1.2200 to 1.2125, some profit taking brought it back to flirt with 1.2150, then another sell off rattled that rally, this time the low was 1.2130, and since the pair has traded in an apprehensive 1.2135/42 range.
EUR/CHF collapsed from challenging its eight year high chalked up on May 1st, failing at 1.6535 and falling to 1.6503 and is holding tentatively around 1.6510. SNB intervention fears and technicians selling the topside failure acted as the catalyst. Now the bears are back in control again, and EUR/USD is back above 1.3600 the street seems more purposeful, amazing what a P&L injection can do for the psyche.
Further downside for USD/CHF to be expected, stops at 1.2080 and 1.1995 on the downside - after all this is all old ground. Topside stops at 1.2210 & 20 seem out of reach given current sentiment.
GBP/USD: Pound Underperforming Amid Fears Rates have Peaked
UK inflation rates remain far above their 2% target but have receded back below the politically sensitive 3% rate. Dealers are nervous that the BOE may not hike rates as aggressively as expected, or at all, listening to some analysts.
Cable has underperformed today, trailing EUR/USD by a wide margin as the USD loses steam across the board today. EUR/GBP has been in a very nice uptrend since bottoming last Wednesday 0.6781, reaching 0.6856 this morning before easing slightly. Hourly uptrend support comes in at 0.6840 now.
Combined with an hourly bottom at 0.6834 this morning in London, it is a sure bet stops are building now in the low 0.6830s. 1.9850 bids are eyed on dips near-term. Small stops were triggered there earlier. Small offers are seen at 1.9880 near-term. GBP/USD topped out at 1.9872 earlier, and trades now at 1.9860.
Cable has underperformed today, trailing EUR/USD by a wide margin as the USD loses steam across the board today. EUR/GBP has been in a very nice uptrend since bottoming last Wednesday 0.6781, reaching 0.6856 this morning before easing slightly. Hourly uptrend support comes in at 0.6840 now.
Combined with an hourly bottom at 0.6834 this morning in London, it is a sure bet stops are building now in the low 0.6830s. 1.9850 bids are eyed on dips near-term. Small stops were triggered there earlier. Small offers are seen at 1.9880 near-term. GBP/USD topped out at 1.9872 earlier, and trades now at 1.9860.
USD/JPY: Japanese Investment in Foreign Assets Continue
Reports last week in the Nikkei stated that flows into funds targeting foreign investments by Japanese investors were higher than domestic investment flows. More data reported by the Nikkei this morning confirms those flows and continues to be a factor fueling JPY weakness and JPY cross buying. The Nikkei cited data from the Japanese Investment Trusts Association.
It reports that the balance of stocks held by investment trusts rose to a record Y23.44 tln, up 21% on the year, though stock funds targeting domestic shares have actually seen net outflows now for the sixth straight month. The rise in overall trusts has been fuelled by the demand for foreign stock trusts, which total Y7.87 tln. Domestic stock holdings are currently at Y15.56 tln. USD/JPY continues to stabilize around 120.25 after the morning sell-off.
It reports that the balance of stocks held by investment trusts rose to a record Y23.44 tln, up 21% on the year, though stock funds targeting domestic shares have actually seen net outflows now for the sixth straight month. The rise in overall trusts has been fuelled by the demand for foreign stock trusts, which total Y7.87 tln. Domestic stock holdings are currently at Y15.56 tln. USD/JPY continues to stabilize around 120.25 after the morning sell-off.
USD/JPY: Bullish Trend Intensity Signal Advances
After recent stalls, the USD/JPY bullish trend intensity signal has advanced a notch to 16. The EUR/JPY trend signal remains neutral at 30. The EUR/USD trend signal is neutral at 20 and the GBP/USD trend signal is neutral at 18.
The USD/CHF trend signal is neutral at trend-ready levels of 10. The EUR/GBP trend signal initiated a new bullish trend, edging a notch higher to 12. These proprietary indicators are updated each trading day after the NY close.
The USD/CHF trend signal is neutral at trend-ready levels of 10. The EUR/GBP trend signal initiated a new bullish trend, edging a notch higher to 12. These proprietary indicators are updated each trading day after the NY close.
US ECON: Cleveland Fed's Median CPI +0.2% in April
According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.1% annualized rate) in April while the 16% trimmed-mean Consumer Price Index rose 0.2% (2.5% annualized rate) during the month. Over the last 12 months, the median CPI rose 3.4%, the 16% trimmed-mean CPI rose 2.8%, the CPI 2.6%, and the CPI less food and energy 2.3%.
The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics (BLS) monthly CPI report.
Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.4% (5.1% annualized rate) in April. The CPI less food and energy rose 0.2% (2.1% annualized rate) on a seasonally adjusted basis.
The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics (BLS) monthly CPI report.
Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.4% (5.1% annualized rate) in April. The CPI less food and energy rose 0.2% (2.1% annualized rate) on a seasonally adjusted basis.
EUR/USD: Rally Reaches 1.3600 as USD Slump Accelerates
EUR/USD has reached 1.3600, a fibo 1.382% projection off the 1.3463/1.3565 range that contained EUR/USD the last three trading sessions. 1.3615/25 is seen containing rallies near-term with several tops in that region dating back to the beginning of May. 1.3683 all-time highs remain a topside target in the near-term.
USD/JPY: Stabilizing as US Stocks, Bond Yields Rise
USD/JPY is stabilizing around 120.25/30 with the DJIA now showing triple digit gains. In addition, bond yields have reversed earlier declines in reaction to the stock rally, with yields now at 4.70% on the ten-year bond according to TradeWeb and above pre-CPI levels.
This is helping to support USD/JPY. The NAR existing home sales shows that sales this quarter have improved over the last quarter of 2006 and prices appear to have stabilized. The lower median house price is being blamed on fewer sales of more expensive homes. EUR/JPY and GBP/JPY are trading to fresh session highs, helping to underpin USD/JPY on the cross as well.
This is helping to support USD/JPY. The NAR existing home sales shows that sales this quarter have improved over the last quarter of 2006 and prices appear to have stabilized. The lower median house price is being blamed on fewer sales of more expensive homes. EUR/JPY and GBP/JPY are trading to fresh session highs, helping to underpin USD/JPY on the cross as well.
Sterling Outlook (15th May 2007)
Cable has fallen by more than half-a-cent to a new one-month low of 1.9747 since the 08:30GMT disclosure of April's as-expected UK inflation figures. Annualized CPI declined to 2.8%, from 3.1% in March. The BoE's target level is 2.0%. Annualized RPI dropped to 4.5%, from 4.8% previously.
Sub-1.9747 bear targets are touted 1.9710, 1.9590, 1.9545 and 1.9410. Resistance levels include 1.9762 (last Friday's low), 1.9782 and 1.9800.
Sterling had climbed from the European open, as the continent absorbed April's better-than-expected 28.9 RICS UK house price balance. Stops above 1.9820 were tripped en route to an intra-day peak of 1.9829.
News-wise: Reuters has agreed to a GBP 8.7bn takeover by Thomson (FT website). M&A flow helped inflate GBP/USD to a high of 2.0000 last Wednesday.
Today's key US event risk is the 12:30GMT disclosure of April inflation numbers. Core CPI is forecast +0.2% m/m, +2.4% y/y. Headline CPI is forecast +0.5% m/m, +2.6% y/y. March TIC data follows at 13:00GMT. Net long-term flows of $73.2bn are forecast, from $58.1bn in February.
Sub-1.9747 bear targets are touted 1.9710, 1.9590, 1.9545 and 1.9410. Resistance levels include 1.9762 (last Friday's low), 1.9782 and 1.9800.
Sterling had climbed from the European open, as the continent absorbed April's better-than-expected 28.9 RICS UK house price balance. Stops above 1.9820 were tripped en route to an intra-day peak of 1.9829.
News-wise: Reuters has agreed to a GBP 8.7bn takeover by Thomson (FT website). M&A flow helped inflate GBP/USD to a high of 2.0000 last Wednesday.
Today's key US event risk is the 12:30GMT disclosure of April inflation numbers. Core CPI is forecast +0.2% m/m, +2.4% y/y. Headline CPI is forecast +0.5% m/m, +2.6% y/y. March TIC data follows at 13:00GMT. Net long-term flows of $73.2bn are forecast, from $58.1bn in February.
Yen Outlook (15th May 2007)
A 4.5% fall in Japanese machinery orders during March knocked the Yen in overnight trade but the pick up in USD/JPY was short lived and early European action saw the Yen recover to 120.10 from 3-month lows of 120.53. China and country ratings the other factors at play for the Yen.
Market jitters over Chinese policy and reference to a faster CNY rise has kept the Yen active while talk of a possible Moody's upgrade to Japan's sovereign rating held market attention but had little impact. The weekend G-8 meetings are not expected to deliver anything meaningful for the forex market and with no change in rates expected at the BOJ the outlook is once more focused on the U.S data run and the trends in the carry trades. USD/JPY is holding softer levels as coupon and redemption payments favour the Yen.
Exporters have also been active in the 121.30 area and there is talk of heavy corporate offers ahead of 120.60. Stops are touted above 120.65 mixed in with option offers ahead of a 120.75 barrier. There is also talk of a 120.50 strangle expiry this Friday, which might be having a sobering effect on price.
Market jitters over Chinese policy and reference to a faster CNY rise has kept the Yen active while talk of a possible Moody's upgrade to Japan's sovereign rating held market attention but had little impact. The weekend G-8 meetings are not expected to deliver anything meaningful for the forex market and with no change in rates expected at the BOJ the outlook is once more focused on the U.S data run and the trends in the carry trades. USD/JPY is holding softer levels as coupon and redemption payments favour the Yen.
Exporters have also been active in the 121.30 area and there is talk of heavy corporate offers ahead of 120.60. Stops are touted above 120.65 mixed in with option offers ahead of a 120.75 barrier. There is also talk of a 120.50 strangle expiry this Friday, which might be having a sobering effect on price.
Euro Outlook (15th May 2007)
EUR/USD made an early stab at the topside into European trading and 1.3560 printed. However, the topside continues to look thick and with key data awaited many preferred to hold out before re-entering the market. Yesterday we at IFR noted that 1.3565/75 was key to the medium-term upside but this large resistance zone now stretches to 1.3585 as the talk of central bank sellers into 1.3580 and the 21-Day moving average line near 1.3585 fortify the previously noted double-day high at 1.3565 (May 9 & 10th) and the 50% Fibo at 1.3573, of the sell-off from 1.3683 (April 27th) to 1.3463 (May 11th).
Bids into 1.3530/35 have propped on dips thus far and as a result the stops seen below 1.3520 have remained intact. Option traders note 1.3500, 1.3530 & 1.3550 strikes intraday and the lower of these expiries could offer support to the pair should the downside come into view ahead of the 14:00 GMT NY cut. Into NorAm trading and the US data/comment deluge begins with the Bernanke speech set for 12:10 GMT. Following this at 12:30 GMT, US April CPI (+0.5% forecast) and May NY Manf. data are released.
Bids into 1.3530/35 have propped on dips thus far and as a result the stops seen below 1.3520 have remained intact. Option traders note 1.3500, 1.3530 & 1.3550 strikes intraday and the lower of these expiries could offer support to the pair should the downside come into view ahead of the 14:00 GMT NY cut. Into NorAm trading and the US data/comment deluge begins with the Bernanke speech set for 12:10 GMT. Following this at 12:30 GMT, US April CPI (+0.5% forecast) and May NY Manf. data are released.
Monday, May 14, 2007
US TECHS: Commodities Outlook; Gold and Oil
Last week's break in [gold] broke uptrends from early January but not longer trends dating back to last October. Prices are above both those trendlines today, found in the $664-70 band on June futures. Outside week structure down last week with a close on the lower end of range is a moderate concern for bulls. Daily trends turned bearish on Friday, and a new Trend Intensity signal was set the day before.
However, the above-noted uptrends are overlapped by weekly envelope floors around $667, so supports have by no means irretrievably broken down. Bulls are best served if the market can get back past 50-day moving averages and key monthly levels in the $674-75 band and stay above. Daily momentum is just crossing into negative territory today; should this prove to be a short-lived move, weekly resistance in the $682-88 zone will be tested this week.
In [oil], only modest gains are needed to neutralize the bearish Trend Intensity signal set last week. Simply put, the failure to break below mid-March floors in the low $60 zone helped stem selling pressures, and now the $63.60-64.00 band has become important, marking significant daily and weekly resistance.
Daily trend models turn bullish today above $61.90 while weekly models can turn bearish (at week's end) below $63.60. Lots of moving average resistance is also found in the upper $63 handle, so that's the area to watch to see if bulls can retake the market's reins.
However, the above-noted uptrends are overlapped by weekly envelope floors around $667, so supports have by no means irretrievably broken down. Bulls are best served if the market can get back past 50-day moving averages and key monthly levels in the $674-75 band and stay above. Daily momentum is just crossing into negative territory today; should this prove to be a short-lived move, weekly resistance in the $682-88 zone will be tested this week.
In [oil], only modest gains are needed to neutralize the bearish Trend Intensity signal set last week. Simply put, the failure to break below mid-March floors in the low $60 zone helped stem selling pressures, and now the $63.60-64.00 band has become important, marking significant daily and weekly resistance.
Daily trend models turn bullish today above $61.90 while weekly models can turn bearish (at week's end) below $63.60. Lots of moving average resistance is also found in the upper $63 handle, so that's the area to watch to see if bulls can retake the market's reins.
US ECON: Philly Fed Survey of Professional Forecasters Updated
The Philadelphia Fed today released the second quarter 2007 Survey of Professional Forecasters. Participants reduced their projections for growth this year.
Highlights include:
* Q2 GDP now seen 2.4%, down from 2.7% in previous survey
* 2007 Core PCE deflator seen at 2.1%, up from 2.0%
* 2007 Unemployment Rate now 4.6%, down from 4.7% prior
* Employment growth estimates upped for 2007, lowered for 2008
Core PCE inflation will average 2.1% on a fourth-quarter over fourth-quarter basis in each of the next three years. These projections are nearly unchanged from those of the previous survey, when the forecasters thought core PCE inflation would average 2.0 percent in 2007 and 2.1 percent in each of the following two years. Forecasters expect core CPI inflation to average 2.3% (Q4 over Q4) in each of the next three years. These projections are unchanged from those of the previous survey.
Forecasters see growth rebounding to 2.9% in 2008, nearly the same rate they expected in the last survey. The unemployment rate is expected to average 4.6% this year, down from 4.7% previously, and 4.8% next year, unchanged from the previous survey. Nonfarm payrolls are estimated to increase by an average 151k per month in 2007 and 122,000 per month in 2008. Previously, the forecasters thought nonfarm payroll employment would rise 135k per month in 2007 and 131k per month in 2008.
Highlights include:
* Q2 GDP now seen 2.4%, down from 2.7% in previous survey
* 2007 Core PCE deflator seen at 2.1%, up from 2.0%
* 2007 Unemployment Rate now 4.6%, down from 4.7% prior
* Employment growth estimates upped for 2007, lowered for 2008
Core PCE inflation will average 2.1% on a fourth-quarter over fourth-quarter basis in each of the next three years. These projections are nearly unchanged from those of the previous survey, when the forecasters thought core PCE inflation would average 2.0 percent in 2007 and 2.1 percent in each of the following two years. Forecasters expect core CPI inflation to average 2.3% (Q4 over Q4) in each of the next three years. These projections are unchanged from those of the previous survey.
Forecasters see growth rebounding to 2.9% in 2008, nearly the same rate they expected in the last survey. The unemployment rate is expected to average 4.6% this year, down from 4.7% previously, and 4.8% next year, unchanged from the previous survey. Nonfarm payrolls are estimated to increase by an average 151k per month in 2007 and 122,000 per month in 2008. Previously, the forecasters thought nonfarm payroll employment would rise 135k per month in 2007 and 131k per month in 2008.
EUR/USD: No Data, No Flow, No Go
Traders are bemoaning woefully scarce end-user flow this morning, with Chicago for the second Monday in a row showing little or no interest, with a paltry E30-35mn trading in the first hour of pit trading. Spot has traded in a 1.3541/55 "range" so far, with CTAs and ECNs noticeably absent.
Spot has been moored at the 1.3547/50 mark for half an hour, and if you flipped a couple of pages forward on the traders "day finder" calendar you would swear it was July. Traders are hoping that tomorrow's German and Eurozone GDP data will liven things up, as well as US CPI and various other US indicators, however that won't help today, and it seems that traders are determined to keep their powder dry for later in the week.
Spot has been moored at the 1.3547/50 mark for half an hour, and if you flipped a couple of pages forward on the traders "day finder" calendar you would swear it was July. Traders are hoping that tomorrow's German and Eurozone GDP data will liven things up, as well as US CPI and various other US indicators, however that won't help today, and it seems that traders are determined to keep their powder dry for later in the week.
Swiss Outlook (14th May 2007)
The new week has marked a return to the carry trade and this has dented the CHF against both the USD and the EUR. Asian action saw the Swiss Franc firm against the Dollar but ease verses the Euro. However, into European trading and USD/CHF finally took note of the cross pressure as EUR/CHF broke back into the 1.65's.
Offers into the 1.2195/2200 area failed to cap but 1.2210 sellers have stalled the rally as the cross attempts to cement the break higher. EUR/CHF hit 1.6520 but bulls have the all-time high at 1.6536 in their sights with option barriers above into the 1.6600 level. Looking ahead, the attention is on the post-European close Fed speakers. At 20:00 GMT Fisher speaks on the service sector while Lockhart is set to speak at 22:30 GMT.
Local dealers look to the Tuesday release of Swiss retail sales data for March (07:15 GMT). The solid job market situation combined with the warm weather should help keep the index on the strong side but this is unlikely to force a Franc U-turn as fresh carry interest keeps the unit on the weak side despite the weekend Jordan comments on higher rates and inflation into H2.
Offers into the 1.2195/2200 area failed to cap but 1.2210 sellers have stalled the rally as the cross attempts to cement the break higher. EUR/CHF hit 1.6520 but bulls have the all-time high at 1.6536 in their sights with option barriers above into the 1.6600 level. Looking ahead, the attention is on the post-European close Fed speakers. At 20:00 GMT Fisher speaks on the service sector while Lockhart is set to speak at 22:30 GMT.
Local dealers look to the Tuesday release of Swiss retail sales data for March (07:15 GMT). The solid job market situation combined with the warm weather should help keep the index on the strong side but this is unlikely to force a Franc U-turn as fresh carry interest keeps the unit on the weak side despite the weekend Jordan comments on higher rates and inflation into H2.
Sterling Outlook (14th May 2007)
Cable dropped to 1.9800 bids after the 08:30GMT disclosure of April's sub-forecast 2.4% annualized rise in UK core output producer prices. 2.7% was expected. Demand at 1.9820 was propping GBP/USD into the data release.
Sub-1.9800 prop points include 1.9778 (Friday's NY session low), 1.9762 (Friday's European morning one-month low), 1.9750 and 1.9710. GBP/USD resistance levels include 1.9845 (Friday's rebound high from 1.9762) and 1.9880.
EUR/GBP offers are touted at 0.6840, with some buy stops pegged above 0.6845. Exotic option barriers reside at, and just ahead of, 0.6875.
The British Chambers of Commerce predicts that annualized UK economic growth will fall to 1.9% in Q1 2008, from 3.0% in Q4 2006 (City AM).
UK April inflation figures will be unveiled at 08:30GMT tomorrow. Annualized CPI is forecast to fall to 2.8%, from 3.1% in March. Annualized RPIX is forecast at 4.5%m from 4.8% previously.
This week's key UK event risk is Wednesday's publication of the quarterly BoE inflation report.
Sub-1.9800 prop points include 1.9778 (Friday's NY session low), 1.9762 (Friday's European morning one-month low), 1.9750 and 1.9710. GBP/USD resistance levels include 1.9845 (Friday's rebound high from 1.9762) and 1.9880.
EUR/GBP offers are touted at 0.6840, with some buy stops pegged above 0.6845. Exotic option barriers reside at, and just ahead of, 0.6875.
The British Chambers of Commerce predicts that annualized UK economic growth will fall to 1.9% in Q1 2008, from 3.0% in Q4 2006 (City AM).
UK April inflation figures will be unveiled at 08:30GMT tomorrow. Annualized CPI is forecast to fall to 2.8%, from 3.1% in March. Annualized RPIX is forecast at 4.5%m from 4.8% previously.
This week's key UK event risk is Wednesday's publication of the quarterly BoE inflation report.
Yen Outlook (14th May 2007)
Tight ranges were a feature overnight with Asian central banks reportedly playing the 120.00 to 120.35 band. Trading conditions were thin and there was reportedly a lack of Japanese corporate interest. The view among local players is that some significant hedging activity passed through the market last week and that this looks to have cleared the order boards.
People are hearing of patchy exporter interest in the 120.40-50 area and also reports of importer bids close to 120.00. There are also rumours that a leading Asian player has a very short term option strangle play on board with an upside level at 120.50. The Yen drew some support from higher than expected Japanese wholesale prices for April but the move proved short lived and with the "carry trade" looking to be back on the Yen is trading towards the bottom of its Monday range.
Much is being made of tomorrow's reportedly sizeable U.S coupon and bond redemption proceeds although the market has a habit of over factoring the likely impact of the repatriation flows, if any.
People are hearing of patchy exporter interest in the 120.40-50 area and also reports of importer bids close to 120.00. There are also rumours that a leading Asian player has a very short term option strangle play on board with an upside level at 120.50. The Yen drew some support from higher than expected Japanese wholesale prices for April but the move proved short lived and with the "carry trade" looking to be back on the Yen is trading towards the bottom of its Monday range.
Much is being made of tomorrow's reportedly sizeable U.S coupon and bond redemption proceeds although the market has a habit of over factoring the likely impact of the repatriation flows, if any.
Euro Outlook (14th May 2007)
Into European trading and EUR/USD pulled back from the 1.3550/55 level after an Asian central bank emerged on the offer to cap the topside. However, bids into 1.3525 propped the dip and with EZ March IP slightly better than expected the Euro was underpinned. Any break above 1.3550/55 will see stops trigger before more offers are encountered into 1.3565 (the dble-day high May 9&10th).
This combined with the 50% Fibo, of 1.3683 (April 27th) to 1.3463 (May 11th), at 1.3573 forms a 1.3565/75 resistance zone. Therefore, a break above 1.3575 would be a more significant topside break and indicative that a return to the 1.3683 all-time highs could be looked for. Option traders note the expiry today of more 1.3500 and 1.3600 strikes.
Both are set to mature at the NY cut at 14:00 GMT along with large 1.3700's. Looking ahead, there is a lack of US data on the calendar intraday and as a result the attention will turn to the post-European close Fed speakers. At 20:00 GMT Fisher speaks on "The Growing Importance of the Service Sector" followed by Lockhart comments at 22:30 GMT.
This combined with the 50% Fibo, of 1.3683 (April 27th) to 1.3463 (May 11th), at 1.3573 forms a 1.3565/75 resistance zone. Therefore, a break above 1.3575 would be a more significant topside break and indicative that a return to the 1.3683 all-time highs could be looked for. Option traders note the expiry today of more 1.3500 and 1.3600 strikes.
Both are set to mature at the NY cut at 14:00 GMT along with large 1.3700's. Looking ahead, there is a lack of US data on the calendar intraday and as a result the attention will turn to the post-European close Fed speakers. At 20:00 GMT Fisher speaks on "The Growing Importance of the Service Sector" followed by Lockhart comments at 22:30 GMT.
Saturday, May 12, 2007
GBP/USD: Rally Cools; Profit-taking in GBP/JPY
Cable is easing back toward minor intraday support at 1.9813 after a pop to 1.9845 at its best levels. Profit-taking in GBP/JPY is having the most pronounced influence on prices as dealers look to wind things up after a choppy week. GBP/JPY jumped two JPY from 236.50 to 238.50 on a sudden willingness to reassume risk after US equities took off to the upside earlier in the day.
Those gains have moderated, with the cross now changing hands at 238.00. Cable has given back a third of its intraday gains and should find support on dips to 1.9805, the 50% retracement of the 1.9760/1.9845 rally.
Those gains have moderated, with the cross now changing hands at 238.00. Cable has given back a third of its intraday gains and should find support on dips to 1.9805, the 50% retracement of the 1.9760/1.9845 rally.
USD/CHF: US Market Opened Uncertain, Nothing's Changed
For those aficionados of Japanese candle sticks, a Doji is a sign of indecision, a price bar that is simply shaped like a cross indicating that despite the price range opening and closing prices were precisely the same at the end of the period. It often presages a change in trend, more so on the daily charts, where you can see a Doji in the middle of this year's dollar top formation that appeared on Jan 29.
This morning a Doji appeared on the hourly study, not as powerful signal as on the daily, but always something to take note of, one appeared two day's ago at the onset of the European session, and presaged the low of 1.2100 that led to a rebound to 1.2200 by the time New York was in full swing. Today the Doji doesn't seem to be saying much however, other than the market is indecisive, isn't sure what way to go, and isn't sure whether this is the beginning of the end of the dollar pull back, or the end of the beginning.
On the weekly study a close here would be a second up week with a higher high, higher low, higher close, and has broken above the downtrend resistance that kicked in at 1.2150, and looking at that chart it is easy to be bullish. Funnily enough the fund manager that made that excellent EUR/USD top call the week before last is also suffering similar pangs.
Initially forecasting a two month dollar pull back they are wondering whether it may end in just another week or so. Meanwhile spot is exactly where it opened the New York session, 1.2187/90 and the 61.8% Fibo of 1.1995/1.2285 the most recent trading extremes comes in at 1.2175 and seems to be holding the sell off. Decisions, decisions.
This morning a Doji appeared on the hourly study, not as powerful signal as on the daily, but always something to take note of, one appeared two day's ago at the onset of the European session, and presaged the low of 1.2100 that led to a rebound to 1.2200 by the time New York was in full swing. Today the Doji doesn't seem to be saying much however, other than the market is indecisive, isn't sure what way to go, and isn't sure whether this is the beginning of the end of the dollar pull back, or the end of the beginning.
On the weekly study a close here would be a second up week with a higher high, higher low, higher close, and has broken above the downtrend resistance that kicked in at 1.2150, and looking at that chart it is easy to be bullish. Funnily enough the fund manager that made that excellent EUR/USD top call the week before last is also suffering similar pangs.
Initially forecasting a two month dollar pull back they are wondering whether it may end in just another week or so. Meanwhile spot is exactly where it opened the New York session, 1.2187/90 and the 61.8% Fibo of 1.1995/1.2285 the most recent trading extremes comes in at 1.2175 and seems to be holding the sell off. Decisions, decisions.
USD/JPY: Bullish Trend Intensity Signal Stalled
The bullish trend intensity signal on USD/JPY remains stalled for the fourth session at 15. The EUR/JPY trend signal is neutral and is consolidating, easing to 31. The EUR/USD trend signal is neutral and consolidating, easing to 23.
The GBP/USD trend signal is also neutral, easing to 20. The USD/CHF trend signal is neutral at trend-ready levels of 10. The EUR/GBP trend signal is neutral at trend-ready levels of 11. These proprietary indicators are updated each trading day after the NY close.
The GBP/USD trend signal is also neutral, easing to 20. The USD/CHF trend signal is neutral at trend-ready levels of 10. The EUR/GBP trend signal is neutral at trend-ready levels of 11. These proprietary indicators are updated each trading day after the NY close.
USD/JPY: Rising US Yields Add to USD/JPY Support
USD/JPY is currently trading at 120.12 with offers at 120.20 having stalled the morning rally. The latest surge in USD/JPY above 120.00 was aided not only by the cross demand by a rise in US bond yields in response to the stock market rally. US ten-year bond yields rose to 4.638%, up from 4.62% this morning.
The two-year yield spread of US bonds over JGBs remains range bound however, with the spread at 379 bp and within the range of 365-395 bp that has contained the spread in recent sessions. The inability of the yield spread to rise above 400 bp, a key psychological level, is one factor seen hampering recent USD/JPY attempts to sustain gains above 120.00. Japanese investors prefer to buy USD/JPY at lower levels, with bids seen staggered from 119.50 down to 119.00. USD/JPY offers remain at 120.50.
The two-year yield spread of US bonds over JGBs remains range bound however, with the spread at 379 bp and within the range of 365-395 bp that has contained the spread in recent sessions. The inability of the yield spread to rise above 400 bp, a key psychological level, is one factor seen hampering recent USD/JPY attempts to sustain gains above 120.00. Japanese investors prefer to buy USD/JPY at lower levels, with bids seen staggered from 119.50 down to 119.00. USD/JPY offers remain at 120.50.
Swiss Outlook (11th May 2007)
Into Europe and USD/CHF pivoted the 1.22 mark with bids into 1.2190/95 propping overnight dips. However, these were soon filled as the Franc continued to elicit support and 1.2177 traded before the price managed to find fresh support. More bids are seen into 1.2155/65 while 1.2195/2200 should cap. Technically, [EUR/CHF] has turned bearish after the close below trend-line support at 1.6475 yesterday.
The 21-Day M/A line at 1.6447 now caps rallies and should a close below this level be seen the downside should come under further pressure into next week. Currently the cross trades at 1.6430 having bounced off 1.6415 support. More bids are seen into 1.6405 with 1.6455/60 expected to cap. Looking ahead, another deluge of US data is set to impact the Dollar ahead of the weekend with only a break below 1.2150 adding pressure on the US unit.
At 12:30 GMT April Producer Price data and Retail Sales numbers are set for release, economists currently look for +0.6% & +0.4% readings. Following this the Commerce Dept. issues March Business Inventories at 14:00 GMT with weekly ECRI data set for unveiling at 14:30 GMT.
The 21-Day M/A line at 1.6447 now caps rallies and should a close below this level be seen the downside should come under further pressure into next week. Currently the cross trades at 1.6430 having bounced off 1.6415 support. More bids are seen into 1.6405 with 1.6455/60 expected to cap. Looking ahead, another deluge of US data is set to impact the Dollar ahead of the weekend with only a break below 1.2150 adding pressure on the US unit.
At 12:30 GMT April Producer Price data and Retail Sales numbers are set for release, economists currently look for +0.6% & +0.4% readings. Following this the Commerce Dept. issues March Business Inventories at 14:00 GMT with weekly ECRI data set for unveiling at 14:30 GMT.
Sterling Outlook (11th May 2007)
Cable plumbed one-month lows just shy of 1.9760 bids in early European trade, on the back of Eastern European GBP/JPY selling. More bids are tipped at 1.9750, with some stops sub-1.9750. A large 1.9700 option strike rolls off at today's 14:00GMT NY cut. 1.9771 was today's Asian session base.
1.9800 is now a resistance level. Stops below 1.9800 were tripped yesterday, following good size Middle Eastern selling of cable. Above-figure obstacles include 1.9815 (today's Asian session peak), 1.9830 and 1.9850.
Outgoing UK PM Tony Blair has endorsed Chancellor Gordon Brown as his successor (FT website). Blair will step down as PM on June 27.
EUR/GBP offers are touted at 0.6820, with some stops above. Earlier this week, a US investment house recommended going long at 0.6800, targeting 0.7000.
US April retail sales and producer price data is due at 12:30GMT. Retail sales forecast: +0.4% m/m, ex-autos +0.5% m/m. Headline PPI forecast: +0.6% m/m, +3.1% y/y. Core PPI forecast: +0.2% m/m, +1.8% y/y. March business inventories ensue at 14:00GMT. Forecast: +0.3% m/m.
1.9800 is now a resistance level. Stops below 1.9800 were tripped yesterday, following good size Middle Eastern selling of cable. Above-figure obstacles include 1.9815 (today's Asian session peak), 1.9830 and 1.9850.
Outgoing UK PM Tony Blair has endorsed Chancellor Gordon Brown as his successor (FT website). Blair will step down as PM on June 27.
EUR/GBP offers are touted at 0.6820, with some stops above. Earlier this week, a US investment house recommended going long at 0.6800, targeting 0.7000.
US April retail sales and producer price data is due at 12:30GMT. Retail sales forecast: +0.4% m/m, ex-autos +0.5% m/m. Headline PPI forecast: +0.6% m/m, +3.1% y/y. Core PPI forecast: +0.2% m/m, +1.8% y/y. March business inventories ensue at 14:00GMT. Forecast: +0.3% m/m.
Yen Outlook (11th May 2007)
The 140+ point fall in the Dow Thursday unsettled the Asian markets and brought the spotlight back on risk and carry trades. Yen short covering was a feature of the overnight session although price ranges for USD/JPY were fairly tight. Asian and U.S funds were active through late Thursday and into the Friday session with EUR/JPY, AUD/JPY and other Yen crosses hit by long liquidation.
Fresh speculation over Chinese rates sent the Yuan higher, which pushed the Yen higher still. A drop to 119.44-48 brought sub-119.50 stops into play but follow through was limited and the USD bounced strongly 119.80. Offers are reportedly camped in the 120.00-20 area with exporters bringing their sell interest closer to market. Further to the topside people are hearing of Asian central bank interest to off-load in the 120.50-60 area and stops are touted tight above.
USD/JPY has a 119.40 look about it with the Yen set to seek out a further advantage ahead of the U.S. retail sales data at 12:30 GMT. Producer prices and business inventories are also due later in the session.
Fresh speculation over Chinese rates sent the Yuan higher, which pushed the Yen higher still. A drop to 119.44-48 brought sub-119.50 stops into play but follow through was limited and the USD bounced strongly 119.80. Offers are reportedly camped in the 120.00-20 area with exporters bringing their sell interest closer to market. Further to the topside people are hearing of Asian central bank interest to off-load in the 120.50-60 area and stops are touted tight above.
USD/JPY has a 119.40 look about it with the Yen set to seek out a further advantage ahead of the U.S. retail sales data at 12:30 GMT. Producer prices and business inventories are also due later in the session.
Euro Outlook (11th May 2007)
Into the North American open and EUR/USD still trades near the 1.3475 point it has spent the day pivoting. Dealers continue to cite lacklustre trading and muted interest from the broader market while offers into the 1.3500/05 look to cap Euro stabs higher. However, thus far the price has struggled to even eke a push for 1.3490 as an eastern European continues to sell on strength.
Various interbank and fund names have sold in Europe but bids into 1.3465 prop ahead of 1.3450 support. Stops are seen below 1.3445 while on the topside stops are seen above 1.3520 and again on a break above 1.3540. Looking ahead, another deluge of US data is set to impact the Dollar ahead of the weekend with only a break below 1.3450 adding pressure on the EUR.
At 12:30 GMT April Producer Price data and Retail Sales numbers are set for release. Economists look for +0.6% & +0.4% readings. Following this the Commerce Dept. issues March Business Inventories at 14:00 GMT with weekly ECRI data set for unveiling at 14:30 GMT. Option traders note the 1.3485 expiry interest intraday with 1.3500 strikes also set to mature at the NY cut.
Various interbank and fund names have sold in Europe but bids into 1.3465 prop ahead of 1.3450 support. Stops are seen below 1.3445 while on the topside stops are seen above 1.3520 and again on a break above 1.3540. Looking ahead, another deluge of US data is set to impact the Dollar ahead of the weekend with only a break below 1.3450 adding pressure on the EUR.
At 12:30 GMT April Producer Price data and Retail Sales numbers are set for release. Economists look for +0.6% & +0.4% readings. Following this the Commerce Dept. issues March Business Inventories at 14:00 GMT with weekly ECRI data set for unveiling at 14:30 GMT. Option traders note the 1.3485 expiry interest intraday with 1.3500 strikes also set to mature at the NY cut.
Thursday, May 10, 2007
GBP/USD: Leveraged Names Selling but Absorbed Well
Dealers note solid selling from leveraged accounts in cable as European trading draws to a close, but the sales are being absorbed with relative ease. Some suggest reserve diversification may be at work with the pound trading at its lowest levels in almost a month despite a BOE rate hike today and recent signs that inflation is not yet abating.
Poor UK trade figures and an overwhelming long market position are two factors weighing on the pound today. The base of a channel comes in at 1.9800 today and was nearly tested earlier in the session. The top of that channel is now at 2.0020, not too far from yesterday's highs. 1.9880 is solid resistance on bounces intraday. Cable trades now at 1.9830.
Poor UK trade figures and an overwhelming long market position are two factors weighing on the pound today. The base of a channel comes in at 1.9800 today and was nearly tested earlier in the session. The top of that channel is now at 2.0020, not too far from yesterday's highs. 1.9880 is solid resistance on bounces intraday. Cable trades now at 1.9830.
EUR/USD: Old Lows in 1.3515/20 Area Containing Modest Rebounds
EUR/USD bounces have been very modest, barely to 1.3515, the old lows posted on Tuesday morning in the US. Subsequent lows in the 1.3520 area are also frustrating the EUR on rebounds near-term. Look for intraday shorts to quicken the pace of their covering if prices re-establish themselves above the 1.3520 level.
Prices have probed the 1.3500 level several times this morning but sovereign demand is scattered down toward 1.3480, dealers report. 1.3565 is pivotal resistance should EUR/USD rebound more forcefully later in the day.
Prices have probed the 1.3500 level several times this morning but sovereign demand is scattered down toward 1.3480, dealers report. 1.3565 is pivotal resistance should EUR/USD rebound more forcefully later in the day.
US TECHS: Commodities Outlook; Gold and Oil
[Gold] has tested important multiple time frame supports at $674-75 today, backed up by major trendlines at $662.50-67.50. Inside week and month structure is in place and Trend Intensity has been slow to trigger any new trend signal of late. Still-bullish monthly trends are vulnerable below $675.
50-day simple moving averages at $674 were tapped at the day's lows. Momentum divergences have played out perfectly in this market so far, and a test of those major trendlines noted above is increasingly likely. Intraday resistance is distant at $681.
In [oil], bearish trend signals on Trend Intensity were reinvigorated with yesterday's break, though prices rebounded to midrange levels on the day by the close. The reaching of major supports in the $59-60 band has been a challenge, with developments in Nigeria helping keep the market from following through to the downside. Daily trends stay bearish below $61.70 Jun today, and weeklies are on track for a bearish shift next week.
Important monthly trends turned bullish at the end of April and lose that status if below $64.45 at this month's close. Daily resistance at $62.50 has already been tested at the highs today and has held but a push past would leave bears more vulnerable in the short term with prices then targeting $63.50 Jun.
50-day simple moving averages at $674 were tapped at the day's lows. Momentum divergences have played out perfectly in this market so far, and a test of those major trendlines noted above is increasingly likely. Intraday resistance is distant at $681.
In [oil], bearish trend signals on Trend Intensity were reinvigorated with yesterday's break, though prices rebounded to midrange levels on the day by the close. The reaching of major supports in the $59-60 band has been a challenge, with developments in Nigeria helping keep the market from following through to the downside. Daily trends stay bearish below $61.70 Jun today, and weeklies are on track for a bearish shift next week.
Important monthly trends turned bullish at the end of April and lose that status if below $64.45 at this month's close. Daily resistance at $62.50 has already been tested at the highs today and has held but a push past would leave bears more vulnerable in the short term with prices then targeting $63.50 Jun.
USD/JPY: Rate Outlook Uncertainty Continues
USD/JPY has had little pullback from the morning highs and remains bid around 120.47. A key factor seen behind USD/JPY support is the view that emerged in the Japanese press over Golden Week that JGB prices suggested that the BOJ will not raise rates until late this year, with only one more rate hike. However, there is speculation in a number of quarters that does not match this scenario.
A fund manager quoted by the IFR Markets JGB analyst in Tokyo suggests that the BOJ could hike as soon as next week's meeting, despite recent weak data. Other traders still see the chance of two BOJ rate hikes this year, and others see the likelihood that the Fed will actually hike this year on inflation concerns, giving the BOJ the window to hike rates as well. Upcoming data is not seen supporting any near term rate hike speculation however.
The latest coincident index was below the key boom-bust line for the third month in a row, and last night's Nikkei BOJ Watch column predicted that the April production data due on May 30, will be particularly week. However, the report does note that BOJ officials still remain upbeat on the economy.
A fund manager quoted by the IFR Markets JGB analyst in Tokyo suggests that the BOJ could hike as soon as next week's meeting, despite recent weak data. Other traders still see the chance of two BOJ rate hikes this year, and others see the likelihood that the Fed will actually hike this year on inflation concerns, giving the BOJ the window to hike rates as well. Upcoming data is not seen supporting any near term rate hike speculation however.
The latest coincident index was below the key boom-bust line for the third month in a row, and last night's Nikkei BOJ Watch column predicted that the April production data due on May 30, will be particularly week. However, the report does note that BOJ officials still remain upbeat on the economy.
Swiss Outlook (10th May 2007)
Into North American trading and there is a slew of US data for USD/CHF to negotiate. However, before the likes of April import-export prices and March international trade data (both at 12:30 GMT) can be seen the market will look to the rate verdicts from the BoE and the ECB.
Swiss traders may be pondering the scope for higher and more aggressive tightening from the SNB but the CHF is yet to elicit the support that the Pound and the Euro have managed to achieve.
The European morning started and finished with the option barriers at 1.2200 in focus. Protective offers into the 1.2190's kept the price at bay early-on before the upbeat Swiss data helped rally the Franc.
The data may have some looking for a more aggressive tone from the SNB but this failed to rally the CHF significantly and after the hawkish Fed the Dollar has garnered more support. The dip found only fresh buyers into 1.2155/60 to force a bounce with [EUR/CHF] only managing to eke slightly lower amid the Franc strength. Bids in the cross into 1.6465/70 remain key to further longer-term weakness.
Swiss traders may be pondering the scope for higher and more aggressive tightening from the SNB but the CHF is yet to elicit the support that the Pound and the Euro have managed to achieve.
The European morning started and finished with the option barriers at 1.2200 in focus. Protective offers into the 1.2190's kept the price at bay early-on before the upbeat Swiss data helped rally the Franc.
The data may have some looking for a more aggressive tone from the SNB but this failed to rally the CHF significantly and after the hawkish Fed the Dollar has garnered more support. The dip found only fresh buyers into 1.2155/60 to force a bounce with [EUR/CHF] only managing to eke slightly lower amid the Franc strength. Bids in the cross into 1.6465/70 remain key to further longer-term weakness.
Sterling Outlook (10th May 2007)
Liquidation of long GBP positions ahead of the looming BoE MPC base rate verdict has been blamed for sterling's London morning slump to a six-day low of 1.9850. The MPC is expected to hike the UK base rate by 25bp to 5.5% at 11:00GMT. A brief statement of explanation will accompany.
Touted support points south of 1.9850 include 1.9840, 1.9825 and 1.9800. 1.9805, 1.9790 and 1.9775 option strikes roll off at today's 14:00GMT NY cut. GBP/USD resistance levels include 1.9890, 1.9900, 1.9929 (today's Asian session base), 1.9964 (today's early Europe high), 1.9975 and 2.0000 (yesterday's 8-day peak). 2.0000 and 2.0100 option strikes also expire today.
Tony Blair has arrived in his Sedgefield constituency where he will make public his plans to stand down as Labour leader and PM (BBC website). Chancellor Gordon Brown is expected to succeed Blair as PM in late June/early July.
UK industrial production was weaker-than-expected in March. The UK trade deficit also widened. The size of March's US trade deficit will be disclosed at 12:30GMT. Forecast: $60.0bn.
Touted support points south of 1.9850 include 1.9840, 1.9825 and 1.9800. 1.9805, 1.9790 and 1.9775 option strikes roll off at today's 14:00GMT NY cut. GBP/USD resistance levels include 1.9890, 1.9900, 1.9929 (today's Asian session base), 1.9964 (today's early Europe high), 1.9975 and 2.0000 (yesterday's 8-day peak). 2.0000 and 2.0100 option strikes also expire today.
Tony Blair has arrived in his Sedgefield constituency where he will make public his plans to stand down as Labour leader and PM (BBC website). Chancellor Gordon Brown is expected to succeed Blair as PM in late June/early July.
UK industrial production was weaker-than-expected in March. The UK trade deficit also widened. The size of March's US trade deficit will be disclosed at 12:30GMT. Forecast: $60.0bn.
Yen Outlook (10th May 2007)
USD/JPY remains trapped in a 119.50-120.50 range. Asia saw the pair trade up early on the back of Japanese importer settlement demand going into the Tokyo fix and a more hawkish-than-expected Fed overnight. It traded up to 120.24 early before easing off. Helping the pair to move back down was a rash of offers from Japanese exporter and option players ahead of barriers at 120.50.
There was also talk of residual repatriation flows from a semi-governmental entity ahead of large US coupon payments on the 15th. Bids returned below 120.00 however with the downside limited to 119.95. EUR/JPY traded similarly, up to 162.74 early before easing to 162.35. Although some apprehension can still be felt ahead of tonight's ECB rate decision (no change) and ECB President Trichet's press conference (to signal a hike in June), dealers see the cross well bid around 162.00 and maybe poised to trade higher.
Purchases below the Ichimoku tenkan line, today at 162.76, have proved profitable since mid-March. AUD/JPY traded up on the back of strong jobs data, from 99.34 to 99.88. Profit-takers look to cap it around 100.00 for now.
There was also talk of residual repatriation flows from a semi-governmental entity ahead of large US coupon payments on the 15th. Bids returned below 120.00 however with the downside limited to 119.95. EUR/JPY traded similarly, up to 162.74 early before easing to 162.35. Although some apprehension can still be felt ahead of tonight's ECB rate decision (no change) and ECB President Trichet's press conference (to signal a hike in June), dealers see the cross well bid around 162.00 and maybe poised to trade higher.
Purchases below the Ichimoku tenkan line, today at 162.76, have proved profitable since mid-March. AUD/JPY traded up on the back of strong jobs data, from 99.34 to 99.88. Profit-takers look to cap it around 100.00 for now.
Euro Outlook (10th May 2007)
At 11:45 GMT the ECB delivers their latest verdict on Euro Zone rates. However, the central bank is expected to leave rates on hold at 3.75% and once again it will be the accompanying press conference that drives the short-term volatility in EUR/USD. The post-decision conference kicks off at 12:30 GMT and the market awaits a Trichet rubber-stamp for a June 25bps hike.
Economists expect the ECB to signal such a move by stating the council will be "vigilant" on price risks, a key word typically used to indicate an imminent rate hike. The market may have priced in this result and for the Euro uptrend to remain in play some suggest the rate path beyond the June meeting may need to be touched upon given the slight hawkish-tone to the Fed overnight. The impending ECB event-risk has keep the EUR supported on dips intraday with Euro crosses also benefiting from renewed EUR buying.
EUR/USD rallied to re-test the 1.3565 level but the failure to push any higher soon resulted in a drop back to 1.3520 support. Central bank sellers are seen into 1.3570 with spot needing to outside the broader 1.35/36 range before further direction is found.
Economists expect the ECB to signal such a move by stating the council will be "vigilant" on price risks, a key word typically used to indicate an imminent rate hike. The market may have priced in this result and for the Euro uptrend to remain in play some suggest the rate path beyond the June meeting may need to be touched upon given the slight hawkish-tone to the Fed overnight. The impending ECB event-risk has keep the EUR supported on dips intraday with Euro crosses also benefiting from renewed EUR buying.
EUR/USD rallied to re-test the 1.3565 level but the failure to push any higher soon resulted in a drop back to 1.3520 support. Central bank sellers are seen into 1.3570 with spot needing to outside the broader 1.35/36 range before further direction is found.
Wednesday, May 09, 2007
US TECHS: S&P Outlook
Traders remain very anxious to buy into the market, utilizing the rare setback to pick up positions. Yesterday's early dip found buying interest by mid-morning, a consistent pattern of late (when the market has been able to trade down).
The cash S&P is well over 100 points above its 200-day moving average, not an all-time high but historically a rich premium and at its most overbought point on oscillator studies since January of 2004. Cycle work does not urge caution (on the bullish side) until closer to mid-June based on historical patterns.
Weekly supports noted at 1492-94 have not come close to being hit this week, but the market did approach monthly resistance at 1520. A break of either would carry prices close to 10 points. Daily and intraday supports are in the 1506-08 zone, with the midpoint of recent hourly trading down at 1499 Jun. First daily resistance is at 1512.00-50, then 1515.50-1517.00.
The cash S&P is well over 100 points above its 200-day moving average, not an all-time high but historically a rich premium and at its most overbought point on oscillator studies since January of 2004. Cycle work does not urge caution (on the bullish side) until closer to mid-June based on historical patterns.
Weekly supports noted at 1492-94 have not come close to being hit this week, but the market did approach monthly resistance at 1520. A break of either would carry prices close to 10 points. Daily and intraday supports are in the 1506-08 zone, with the midpoint of recent hourly trading down at 1499 Jun. First daily resistance is at 1512.00-50, then 1515.50-1517.00.
GBP/USD: Buy Stops Tripped, 1.9970 Offers Under Threat
Tripped buy stops have helped inflate cable to 2-day highs just shy of 1.9970 a level at which sell interest is tipped. Additional offers were formerly flagged at 1.9980 and 2.0000.
Helping underpin the pound is the risk that the BoE MPC might raise the UK base rate by 50bp to 5.75% at 11:00GMT tomorrow. A 25bp hike to 5.5% is expected. 1.9941 (yesterday's NY session peak) is now a support point. Lower props include 1.9910 and 1.9880.
Helping underpin the pound is the risk that the BoE MPC might raise the UK base rate by 50bp to 5.75% at 11:00GMT tomorrow. A 25bp hike to 5.5% is expected. 1.9941 (yesterday's NY session peak) is now a support point. Lower props include 1.9910 and 1.9880.
EUR/USD: Jawboning Gives EUR Modest Lift
USD/JPY is leading the way lower for the greenback with some jawboning from the EU's Juncker helping fuel the move. He suggests that JPY rates do not reflect economic fundamentals.
EUR/JPY is slipping as well, making EUR/USD a slow grind to the topside. Juncker further notes that a continued strong EUR could hurt exports. Offers are seen in the 1.3555/60 region with a few small stops sprinkled above 1.3565. EUR/USD trades at 1.3546.
EUR/JPY is slipping as well, making EUR/USD a slow grind to the topside. Juncker further notes that a continued strong EUR could hurt exports. Offers are seen in the 1.3555/60 region with a few small stops sprinkled above 1.3565. EUR/USD trades at 1.3546.
USD/CHF: 1.22 Intact As Spot Eases Back, 1.2155/65 Support Key
The 1.22 level remains intact in USD/CHF with the option barriers still in play the pair eases back once more. Bids into 1.2165/70 will initially look to stall the dip. Below the intraday low at 1.2165 the pullback low from late European trading yesterday sits at 1.2155. As a result of this 1.2155/65 is seen a broader zone of support with bids lining up in this band to protect the Dollar into Fed verdict.
Only a break below the lower level will add momentum with a push below 1.2145 putting the price into stop/loss territory. Should this scenario occur then a retracement to 1.2100/05 area will be looked for by bears. A break under the 61.8% Fibo, of the rally yesterday (from 1.2102 to 1.2195), at 1.2138 signals such a move.
Only a break below the lower level will add momentum with a push below 1.2145 putting the price into stop/loss territory. Should this scenario occur then a retracement to 1.2100/05 area will be looked for by bears. A break under the 61.8% Fibo, of the rally yesterday (from 1.2102 to 1.2195), at 1.2138 signals such a move.
Swiss Outlook (9th May 2007)
The Franc never really took note of the comments from the Swiss Economy Minister that few in the mountain economy are worried over Franc weakness. Intraday and the CHF managed to elicit a modicum of support into European trading ahead of the re-opening of the local 2017 4.25% bond auction. The Federal Treasury sold CHF 665Mln according to the recent results but USD/CHF failed to break below the key 1.2155/60 support level.
Spot bounced off 1.2165 and local dealers cite EUR/CHF buying as "having impacted the Dollar pair". However, standing offers into the 1.2180's and 90's continue to stall the hopes of a run at the 1.2200 option barriers with the US unit generally seen in a consolidative mood ahead of the FOMC. EUR/CHF in contrast now looks capped by the 1.6495 & 1.6500 option strikes set for expiry today (NY cut at 14:00 GMT).
US data is set for release into NorAm trading but the 11:00 mortgage data and the 15:30 GMT Transportation Services Index have been overshadowed by the 18:15 GMT verdict from the latest one-day FOMC meeting. No change is expected but the Bernanke comments are being keenly awaited by the FX markets.
Spot bounced off 1.2165 and local dealers cite EUR/CHF buying as "having impacted the Dollar pair". However, standing offers into the 1.2180's and 90's continue to stall the hopes of a run at the 1.2200 option barriers with the US unit generally seen in a consolidative mood ahead of the FOMC. EUR/CHF in contrast now looks capped by the 1.6495 & 1.6500 option strikes set for expiry today (NY cut at 14:00 GMT).
US data is set for release into NorAm trading but the 11:00 mortgage data and the 15:30 GMT Transportation Services Index have been overshadowed by the 18:15 GMT verdict from the latest one-day FOMC meeting. No change is expected but the Bernanke comments are being keenly awaited by the FX markets.
Sterling Outlook (9th May 2007)
The BoE MPC is expected to raise the UK base rate by 25bp to 5.5% at midday BST tomorrow (Thursday). There is more risk of a 50bp hike as advocated by four "Shadow" MPC members, than no change.
GBP/USD rallied to an intra-day peak of 1.9935, with EUR/GBP revisiting yesterday's 0.6792 two-week low, after the BRC disclosed that annualized UK shop price inflation rose to 0.8% in April from an upwardly revised 0.7% in March.
1.9910 (today's Asian session top) is now a sterling support point. Lower props include 1.9880 (yesterday's low), 1.9870, 1.9840/50 and 1.9825. Resistance levels north of 1.9935/40 are located at 1.9970/80 and 2.0000.
Following yesterday's ceremony at Stormont to mark the return of power-sharing to Northern Ireland, Tony Blair is expected to announce today or tomorrow that he is standing down as Labour leader and PM. Chancellor Gordon Brown is expected to succeed Blair as PM in late June/early July.
Today's key event risk is the 18:15GMT FOMC statement to accompany an (expected) unchanged Fed funds rate verdict.
GBP/USD rallied to an intra-day peak of 1.9935, with EUR/GBP revisiting yesterday's 0.6792 two-week low, after the BRC disclosed that annualized UK shop price inflation rose to 0.8% in April from an upwardly revised 0.7% in March.
1.9910 (today's Asian session top) is now a sterling support point. Lower props include 1.9880 (yesterday's low), 1.9870, 1.9840/50 and 1.9825. Resistance levels north of 1.9935/40 are located at 1.9970/80 and 2.0000.
Following yesterday's ceremony at Stormont to mark the return of power-sharing to Northern Ireland, Tony Blair is expected to announce today or tomorrow that he is standing down as Labour leader and PM. Chancellor Gordon Brown is expected to succeed Blair as PM in late June/early July.
Today's key event risk is the 18:15GMT FOMC statement to accompany an (expected) unchanged Fed funds rate verdict.
Yen Outlook (9th May 2007)
Tokyo offers in the 120.00 area continue to frustrate the bull market and exporter interest is reportedly thick between 120.00 and 120.30. Weight from the options market has also been a feature as barrier plays, although off the pace at 120.50, continue to take the edge off any Dollar rebound.
On the buy side patchy interest from U.S names has stalled early European weakness at 119.70-75 and there is further talk of reasonable bids from Japanese institutional and retail investors including semi-governmental agencies down to 119.50. Light stops are touted below the 119.50 level, which is also where the Ichimoku Tenken line comes in today. On the option front there are a number of large expiries today, see story timed at 06:59 GMT. The largest of which is an estimated USD 250 mln 120.00 strike.
On the wide we are looking for a 119.60 to 120.10 European morning range but the price band is likely to be far tighter with action focused on a 119.80 pivot. EUR/JPY has also traded tight with 162.15 to 162.50 on the wide. Stops are touted under 162.00 and 161.80.
On the buy side patchy interest from U.S names has stalled early European weakness at 119.70-75 and there is further talk of reasonable bids from Japanese institutional and retail investors including semi-governmental agencies down to 119.50. Light stops are touted below the 119.50 level, which is also where the Ichimoku Tenken line comes in today. On the option front there are a number of large expiries today, see story timed at 06:59 GMT. The largest of which is an estimated USD 250 mln 120.00 strike.
On the wide we are looking for a 119.60 to 120.10 European morning range but the price band is likely to be far tighter with action focused on a 119.80 pivot. EUR/JPY has also traded tight with 162.15 to 162.50 on the wide. Stops are touted under 162.00 and 161.80.
Euro Outlook (9th May 2007)
The Fed today begins their one-day meeting but the markets have priced in an unchanged verdict from the Bernanke-led FOMC at the 18:15 GMT release. However, many expect to gain further clues on the path of US inflation from the rhetoric used and as a result the potential for any rate moves into H2 could be unveiled.
EUR/USD has traded on a steady footing for the majority of the day with the Asian 1.3535/55 range only marginally extended by European position adjusting to 1.3530/60. Dealers now look for spot to trade a rough 1.3525/75 band ahead of this central bank event-risk with the broader 1.35/36 range said to give the price more directional clues. With the ECB also set to report on rates this week (Thursday 11:45 GMT) this range may prevail for now.
Should spot break below 1.3530/35 support in the short-run then 1.3515/20 will be eyed with stops reported below here before the 1.3500 level comes into view. Central bank and Sovereign names have been reported to be protecting this level with larger stops noted below. Elsewhere, option dealers note expiries at 1.3500 intraday (NY cut at 14:00 GMT) that should help fortify the downside.
EUR/USD has traded on a steady footing for the majority of the day with the Asian 1.3535/55 range only marginally extended by European position adjusting to 1.3530/60. Dealers now look for spot to trade a rough 1.3525/75 band ahead of this central bank event-risk with the broader 1.35/36 range said to give the price more directional clues. With the ECB also set to report on rates this week (Thursday 11:45 GMT) this range may prevail for now.
Should spot break below 1.3530/35 support in the short-run then 1.3515/20 will be eyed with stops reported below here before the 1.3500 level comes into view. Central bank and Sovereign names have been reported to be protecting this level with larger stops noted below. Elsewhere, option dealers note expiries at 1.3500 intraday (NY cut at 14:00 GMT) that should help fortify the downside.
Tuesday, May 08, 2007
USD/JPY: Going Nowhere Fast, More Ranging Eyed Today
USD/JPY did very little overnight, holding in a tight 119.85-120.12 range during the course of the New York day. No fireworks were seen in London-less European trading either. The focus looks to be well away from JPY pairs with M&A action elsewhere and stock market rallies taking the spotlight. This likely to continue to be the case, USD/JPY looks set to see another range trade.
At 120.06/09, the pair remains bracketed by offers above from the 120.20-30 level and trailing up to option barriers at 120.50 and above. Stops are seen above 120.80 but more offers from Japanese exporters are likely above. To the downside, bidding interest remains from the 119.80 area down towards 119.50. Various players are tipped below, including Japanese institutional investors, including life insurers and semi-governmental entities, as well as importers looking to buy into dips.
In an interesting footnote, some foreign players look to be better JPY buyers than sellers. A number are seen net short Japanese stocks, and have to buy back ahead of month-end. Moves out of some carry trades may be seen as JPY is bought back in this regard.
At 120.06/09, the pair remains bracketed by offers above from the 120.20-30 level and trailing up to option barriers at 120.50 and above. Stops are seen above 120.80 but more offers from Japanese exporters are likely above. To the downside, bidding interest remains from the 119.80 area down towards 119.50. Various players are tipped below, including Japanese institutional investors, including life insurers and semi-governmental entities, as well as importers looking to buy into dips.
In an interesting footnote, some foreign players look to be better JPY buyers than sellers. A number are seen net short Japanese stocks, and have to buy back ahead of month-end. Moves out of some carry trades may be seen as JPY is bought back in this regard.
USD/CHF: Stops Run As Dollar Guns For 1.2200 Barriers
USD/CHF has run stops in the break above 1.2185 and the pair is now gunning for the barriers at 1.2200. 1.2195 has printed as the fresh session and intraday high but thus far the pair has failed to eclipse the option related sales into the options.
US TECHS: Commodities Outlook; Gold and Oil
[Gold] is lower today and the market is facing daily momentum issues once more. Peak readings set in late February haven't been re-approached, either at the April 20 price top nor yesterday. The non-confirm, in line with weak showings in related markets (silver, XAU, HUI) raises concerns that the whole period since last July's top has traced out a large rising wedge that is set to resolve to the downside with the steady failure(s) to penetrate the $700 region.
Long-term uptrends are at $661.50-67.50 today, not at risk of being reached but worth monitoring for signs of weakness. Weekly/monthly supports at $675 would have to give way first, of course. Trend Intensity, IFR's proprietary trend indicator, has been slow to fire (bullishly) and remains stalled at neutral. A sub-$687 close today sends daily trends on another model back to neutral.
In [oil], with the setting of a new bearish Trend Intensity signal last Friday, near-term bounces should be viewed as selling opportunities. The multiple time frame zone of support mentioned on Monday at $59-60 remains a target. Daily chart resistance is approximately $62.00-50. Yesterday's lows reached 50% retracement targets of 2007 range at $60.90; key 62% measures are a shade below $59.
Long-term uptrends are at $661.50-67.50 today, not at risk of being reached but worth monitoring for signs of weakness. Weekly/monthly supports at $675 would have to give way first, of course. Trend Intensity, IFR's proprietary trend indicator, has been slow to fire (bullishly) and remains stalled at neutral. A sub-$687 close today sends daily trends on another model back to neutral.
In [oil], with the setting of a new bearish Trend Intensity signal last Friday, near-term bounces should be viewed as selling opportunities. The multiple time frame zone of support mentioned on Monday at $59-60 remains a target. Daily chart resistance is approximately $62.00-50. Yesterday's lows reached 50% retracement targets of 2007 range at $60.90; key 62% measures are a shade below $59.
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