(Reuters) - There has been just an inkling in recent weeks that financial markets might start to take their lead from the 'real' economy again after three years of being tossed about by their own panics and periodic exuberance.
Since the finance industry flailed into its crisis of confidence, doubting its own practitioners and the governments who became over-dependent on them, it has been almost impossible for households and companies to work out what markets are trying to predict about production, employment and consumption.
The net result has been the tail wagging the dog.
Guess the ephemeral mood of global markets six months hence -- voracious risk appetite or bunker-seeking safety -- and you might just stand a chance of predicting where businesses, consumers and policymakers would be forced to follow.
And while PIMCO asset managers predict a post-crisis 'new normal' of years of sluggish growth and policy angst, many yearn for an 'old normal' where finance reflects, rather th7an dictates, what is happening in the real economy where people produce and consume goods and services.
A VERY FINANCIAL COUP
For some, the credit crisis and aftermath had been fomented for decades by a more than a doubling of financial services to some 7.5 percent of the U.S. economy in the 40 years to 2007.
"The 3 percent of GDP (gross domestic product) that was made up of financial services in 1965 was clearly sufficient to the task, the proof being that the decade was a strong candidate for the greatest economic decade of the 20th century," Jeremy Grantham, Chairman of Boston-based asset manager GMO, told clients this month.
Lauding this month's U.S. financial regulation bill, he added: "The extra 4.5 percent would seem to be without material value except to the recipients. Yet it is a form of tax on the remaining real economy and should reduce by 4.5 percent a year its ability to save and invest, both of which did slow down."
Former International Monetary Fund chief economist Simon Johnson's 2009 Atlantic magazine essay, "The Quiet Coup", took a more conspiratorial view of the same phenomenon in sketching the lobbying power of the financial industry over that period.
Johnson estimated U.S. financial sector profits, which had never topped 16 percent of overall corporate profits in the decade to 1985, soared to 41 percent by the noughties. Average financial sector compensation as a share of the average in other industries almost doubled to 181 percent.
There was a similar development in Britain, where financial services had reached 8.5 percent of total output just before the crisis.
Deregulation, privatization, trade globalization and demographic trends were all catalysts for this growth in finance and the current regulatory backlash against the banks is unlikely to return the sector to its 1960s size.
But if knocking the froth off finance allows a more even relationship between real economic trends and financial markets, there may be a chance of tempering the endless boom and busts.
CHANGE AFOOT?
Is there any sign of that happening right now? Well, just an inkling.
In the past three years, financial and investment flows have been violently herded in and out of "safe-haven" cash and liquid assets, correlations zoomed between all asset classes and geographic regions, and risk gauges -- largely volatility measures -- careened from historic lows to highs and back again.
This mass behavior had been building for 20 years. Computer trading strategies supercharged the effect over time.
Yet as this year's euro zone sovereign debt crisis ebbs into the second half of the year, the herd seems for now to have stopped stampeding from its own rifle shots and may be listening more carefully to the underlying economy again.
Mindful of near-zero interest rates in cash, an expected dash back to safe-haven money market funds never really materialized during the worst of the euro crisis in April and May and 2010 outflows from these funds are still close to half a trillion dollars.
Partly as a result, stresses evident in lock-step asset correlations have ebbed and investors seem easier with idiosyncratic trends in selected stocks and credits.
Equity volatility has halved from April/May peaks and quartered from post-Lehman Brothers highs in 2008 and is holding closer to 20-year averages just above 20 percent rather than returning to unrealistic pre-2007 levels in single digits.
Even the world's main exchange rates between the U.S. dollar and euro -- long captive to "risk on/risk off" swings -- are starting to reflect interest rate gaps more than stress.
For active and diversified investors, this is how it is supposed to be and allows them to do what it says on the tin.
To be sure, we've been here before. But there are rays of hope for some return to old normals.
(Graphic by Scott Barber; Editing by Ruth Pitchford)
The substance and meaning of Friday’s Stress test results are still be hotly debated. Financial pundits are putting enormous emphasis on the European open as the barometer of the market’s sudden confidence in the results. We are still unconvinced about the stress tests and doubt that a single market open/trading day will create the directional rush some participants are looking for. FX markets initially took on risk in Asia but the gains were quickly eroded.
Seven of the EU banks, out of a total of 91, failed the stress test. The test did not find any troubled institutions in countries such as Italy and Portugal and just one in Greece. Of the banks that did fail, they only needed to 3 million Euros to meet their Tier-1 capital ratio of 6%, quite a low figure for major banks. The EU’s widespread denial of the possibility of a sovereign default is vexing to analysts, but it’s understandable from a political and market stability standpoint.
Overall, if the purpose of this test was to gauge the probability of a sudden bank collapse in the EU, than it misses the mark. We maintain the view that Europe’s problems are largely structural and thus no test will address these problems. The macroeconomic assumptions used in the adverse scenarios were not very difficult nor believable. Ireland’s GDP growing 1% is not an emergency scenario.
Markets will continue to watch LIBOR and credit-default swap spreads carefully as well as the equity markets’ reactions – especially to see which banks come under heavy selling pressure.
The Euro’s strength is limited as domestic growth prospects will diminish as the austerity measures kick in. Global growth is still decelerating and the credibility of the single currency has been damaged in recent years. In addition, we have our eye on the Swiss Franc to outperform across the board. The Swiss version of the stress test, released Friday prior to the EU test, was more rigorous and comprehensive. With the added scrutiny, market participants can be confident in Switzerland’s banking sector. We suspect capital will continue to flow from Europe, into Switzerland, as investors seek out a safe haven for their assets.
We are still very impressed with the UK growth figures released last Friday. Q2 GDP figures came in well ahead of expectations at 1.1% q/q and 1.6% y/y, ahead of the 0.6% q/q & 1.1% y/y expectations. While PMC member Posen has raised the question of further QE to prevent the UK’s economy from taking another dip, we are leaning more to the views of Sentence that inflationary pressure needs to be tackled now. We will be watching for the opportunity to go Long sterling, especially in the EURGBP.
Today’s final thought is on the Yen. There has been a noticeable lack of rhetoric surrounding its recent strength. The current government coalition believes that markets themselves should set prices, even though there has been no noticeable erosion in exports (June exports increased a whopping 27.7% y/y). This week’s June CPI will be in negative territory and we believe it’s only a matter of time until Japanese rhetoric begins and we see the Yen lose ground.
Today's Key Issues (time in GMT): 07:30 SEK Jun trade balance; last SEK2.7 bln surplus. 07:30 GBP Details of UK financial supervision reform. 14:00 USD Jun new home sales, 335k AR eyed; last 300k. 00:00 PLN Interest rate announcement, % 3.50 exp/prior
EurUsd Well, the European stress tests were just as underwhelming as expected, so for now EURUSD’s short-term uptrend remains intact and the markets look pretty directionless this Monday morning. Our gut instinct is that the medium-term direction for this pair will be lower, but in the short-term we would be willing to play this one either way depending on the outcome of a potential symmetrical triangle pattern now visible on the hourly chart. The lower edge of the triangle coincides with the short-term uptrend line, so a break below that support (currently 1.2825) would be the signal to go short with a target below around 1.2480. Given that target is some distance away, supports on the downside are a potential hazard at 1.2793 (Friday’s low),1.2733 (21 Jul low), 1.2683 (14 Jul low) and 1.2522 (13 Jul low). Should the bullish triangle scenario play out instead then we need a break above 1.2950 to trigger long entry, and eye a target above at 1.3300. Next resistance is expected at the 100-day moving average 1.2874, 1.3028 (20 Jul high) and 1.3093 (10 May high).
GbpUsd After the false break of the 6-week uptrend last week GBPUSD has bounced emphatically higher, and impressive UK GDP figures on Friday has catalysed the rally further to highs of 1.5501. In doing so, the pair has now surpassed the 15 Jul highs at 1.5472 and is now expected to make a move on the more significant 1.5525 (15 Apr high). Above there lies yet more technical resistance (namely the 200-day moving average 1.5558 and 23 Feb high 1.5575) which should stall the rally on the first visit, but beyond there the skies are clear for a run on 1.6000. Nearest support is back down around 1.5350 pivot level, with the lower edge of the 6-week uptrend now coming in below at 1.5280. Should the trend break lower once more then first stop on the downside will be 1.5125 (last Wednesday’s low), followed by 1.5080.
UsdJpy The bearish flag pattern we had been tracking last week has now decisively been dead and buried by the move back above 87.50, and if anything we look to be carving out a range between 86.25 –87.75. At current levels towards the upper end of the range, the most attractive strategy is to sell some and await a return to 86.50ish levels, but ensuring we keep a tight stop on the topside to keep the risk/reward ratio manageable. There is a possibility that from here, a break above that range ceiling (87.75) could indicate a double bottom chart pattern has been activated, and if so, we should be getting long there and aiming for a target above of 88.85.Sellers are expected to step in around 88.00 (former pivot), 89.15 (12 Jul high) and 89.50 (28-29 Jun high).
UsdChf Finally, someone told the bulls about the break of the 3-week downtrend channel and we managed to get a bullish engulfing candlestick pattern on the daily chart to finish the week; it only took about 3 days... The decisive burst higher on Friday afternoon hit a peak of 1.0564 but progress has been halted by resistance coinciding with the 19 Jul highs, so for now the pair is now consolidating above 1.0500. We see a potential bullish flag pattern on the hourly chart that suggests a break above 1.0560 should be taken as the signal to go long, with a target on the topside around 1.0715; however we think buying on a dip to 1.0500 (the lower edge of the flag) also represents decent value with 1.0450 likely to offer some protection below. Only resistance levels above to be wary of are the 14 Jul highs at 1.0618 and the 200-day moving average at 1.0640.
The euro rose today after the European supervising agency released its report on the stress test results of 91 banking institutions on 16:00 GMT. Though, the impact of the release wasn’t very strong.
The euro rose against the U.S. dollar after the release was made available to the public. Having fallen earlier today, the Eurozone currency began to rise about 2 hours before the report, then went through an hour of strong market volatility and then ended up in a rather sound bullish trend wave. It failed to go up against the British pound as the latter was experiencing a very prominent trading session today.
The Committee of European Banking Supervisors reported on the strength of the of the EU banking sector today. A 55-page summary of the report mentions 7 banks that failed the test (majority of them comes from Spain). But it looks like the report didn’t impress the market participants as there wasn’t any definite unidirectional movement after the release.
EUR/USD rose from 1.2887 to 1.2918 as of 19:29 GMT today after falling to as low as 1.2793 earlier. EUR/JPY increased from 112.16 to 112.97.
* Risk markets rebound, but sentiment lacking conviction * Stress tests dominate attention in Europe * Double dip a done deal? * GBP shows a little resilience * Key data and events to watch next week
Risk markets rebound, but sentiment lacking conviction
After dropping to recent lows at the end June, risk assets have regained most of that lost ground, but there are some noteworthy differentiations that suggest caution and a lack of conviction continue to dominate. In terms of recoveries, the S&P 500 has effectively recovered all its losses since the end of June, and is now re-testing the key 1075/80 breakdown area, now resistance. In bonds, US Treasuries yields are up off their lows, but still below the key technical resistance (prior lows for the year) between 3.05/3.10%. For stocks and bonds, those resistance levels remain the triggers to a further risk rebound. In commodities, the recovery has been more muted, with the CRB Index having regained only about 2/3rds of its losses since the end of June, which is potentially suggestive of a correction rather than a rebound. More fundamentally, a lesser rebound in commodities suggests ongoing concern that the global recovery is stalling. Declines in the Baltic Dry Index to lows not seen since May 2009 underscore the outlook for weakness in commodity demand.
In currencies, the notable shift is more pronounced USD weakness, with the USD index having fallen for the last 5 weeks straight. Weakness in the buck is due to consistently disappointing US data over that period, which highlighted concerns that the US recovery is stumbling. An increasingly likely US slowdown, in turn, jeopardizes the broader global recovery, which explains the back and forth in risk assets over the last few weeks. In the JPY-crosses, the rebounds closely mirror those seen in US shares, with losses since the end of June simply being recouped rather than surpassed. Clearly, conviction is lacking across all asset classes and that suggests short-term flexibility in positioning remains essential.
In terms of shorter-term trading direction, we are clearly at a crossroads, where recoveries above risk resistance levels cited above could trigger additional follow-through. In FX, strength in EUR/USD above the 1.2720/30 area is the equivalent trigger and represents a break of the entire downtrend from Nov. 2009, and a likely new phase of USD weakness. In the bigger picture, though, risks remain tilted toward further weakness as the developed economies remain burdened by high unemployment and impending austerity measures/fade out of stimulus. In that sense, we view the rebounds of the past week as more of a correction and continue to see gains in risk assets as selling opportunities. However, we are mindful of still heavy risk-averse positioning (e.g. short-EUR, long USD, short JPY-crosses) and with it the potential for a further squeeze higher and thus we would suggest relatively tight stop losses just above the past week's highs.
Stress tests dominate attention in Europe
Initial enthusiasm that most banks would pass the stress tests outlined by the Committee of European Banking Supervisors (CEBS) on July 7 quickly dwindled as fears rose that non-stringent tests would fail to bring sufficient transparency into the banking sector. The banks will be tested against macro-economic scenarios; the most adverse of which will assume a 3% deviation in GDP from the EC's forecast over a 2 year horizon. A shock on interest rates to reflect a possible deterioration in the EU government bond market will also be included. However, there is plenty of debate on whether the haircuts made to government bond holdings will sufficiently reflect potential risks; some investors are unhappy that the CEBS has apparently ignored the possibility of sovereign default. EU officials have moved quickly to offset concerns over the credibility of these tests, but doubts are likely to persist at least until the publications of the test results on July 23, and possibly beyond. The fact that German Landesbanken and Spanish savings banks are on the list of banks that will be tested suggests that the authorities are not deliberately avoiding the institutions considered to be among Europe's weakest. By implications, however, the market will be expecting some of these banks to fail if the tests are to be perceived as sufficiently credible. The EC has reassured the markets that the EU is well prepared to deal with this situation, but uncertainty over the results could leave the EUR unsettled in the coming weeks.
Double dip a done deal?
Earlier this week the S&P 500 was down 15% from its April 2010 high. The ongoing debate on whether the US economy is poised for a double dip recession can be linked with these falls. At present there is insufficient evidence to conclude that the US economy will fall back into recession, though there are signs that the recovery could be losing momentum. A key question is whether the adjustment in asset prices seen since the end of April has been appropriate. Proponents of double-dip imply that asset prices may have further to fall. In contrast, die-hard bulls suggest that equity valuations are looking cheap. In the past few sessions, the bulls have been gaining the upper hand.
The reining in of government fiscal incentives and in many cases the implementation of austerity measures suggests that economic growth in most of the developed world will be constrained for the next few years. The release a month ago of the much worse than expected May US Labour report was followed by a bout of poor US housing and confidence data that had the effect of triggering a wide scale debate about the prospects for double dip recession in the US. The guts of the June US employment report did little to dissuade this speculation. Average hours worked in June fell and 652K people gave up looking for work; during the early stages of an economic recovery the labour market usually expands. That said the data were not bad enough to suggest that double dip is a done deal. Private sector payrolls managed to expand by 83K. While this was less than expected an expansion in private sector payrolls tends to be a precursor to economic expansion.
Adding to evidence that the US expansion remains in place is the steady expansion in the US industrial production index from its mid 2009 trough. Retail sales have been more volatile, but the underlying trend in the index also suggests improvement. As it stands, double dip in the US would seem unlikely. In Germany, sentiment has been affected by concerns over the strength of the European banking sector. That said German factory orders and industrial production have been on a clear upward trend, pulling in new workers along the way.
The industrialized world is still struggling to fully overthrow the constraints of the financial crisis. The slow-to-moderate growth in money supply data in many countries continues to illustrate that the banking sector is not yet fully healed and that the process of balance sheet repair continues on both a corporate and consumer level. The US, Spanish and Irish housing markets are far from recovered; in the UK it remains wobbly. The pace of economic growth in 2010 and 2011 for many developed countries will be relatively low compared with their averages of the past decade. That said, growth is likely to be sustained suggesting that fears over double-dip are likely overdone and that equity markets and other risk assets may find support. GBP shows a little resilience
Relative to the EUR, sterling has now unwound all of its post-June 21 budget gains. These gains had made the pound susceptible to poor economic news, sterling's resilience in the face of poor trade data released July 9 suggests there is more investor interest in establishing sterling longs at current levels and that sterling may again become more sensitive to stronger economic data than to bad. Technical resistance lies at EUR/GBP 0.8430, assuming this holds EUR/GBP could be poised to resume its downtrend.
Key data and events to watch next week
The calendar in the US is modestly heavy in the week ahead. No data on Monday but Tuesday kicks off with the IBD/TIPP Economic Optimism Index. The data slate on Wednesday is the heaviest of the week with Import Price Index, Advance Retail Sales, Business Inventories, and the FOMC Minutes to wrap up the day. Thursday sees June PPI, weekly Jobless Claims, July Empire Manufacturing, Industrial Production, and the July Philadelphia Fed Index. Friday wraps up the week with June CPI, May TIC data, and U. of Michigan Consumer Confidence.
Eurozone data is relatively light. EZ Finance Ministers will meet in Brussels on Monday where they are expected to outline their planned responses to the results of EZ bank stress tests. Tuesday sees the ZEW survey of economic sentiment along with EZ CPI and Industrial Production on Wednesday. Friday caps off eurozone data with EZ Trade Balance. Tuesday will be the only day with data announcements out of Germany when the Wholesale Price Index and German ZEW survey of economic sentiment will be released.
Data out of Tokyo is moderately busy kicking off with Industrial Production, Capacity Utilization, and Consumer Confidence on Tuesday. Wednesday will have the BOJ Monetary Policy Meeting followed up with the BOJ Target Rate on Thursday. Additional data on Thursday has June Machine Tool Orders and the May Tertiary Industry Index. Capping off data releases for the week will be June Nationwide and Tokyo Dept. Sales numbers on Friday.
The UK starts off a significant week of data with final 1Q GDP, Current Account, BRC June Retail Sales Monitor and the RICS House Price Balance. Tuesday sees CPI, RPI, and DCLG UK House Prices. Thursday wraps up the week's data with Claimant Count Rate and Jobless Claims Change.
Data out of Canada is light with Manufacturing Sales and Leading Indicators to be released on Thursday and Friday, respectively.
The calendar down under begins with NAB Business Conditions, Westpac Consumer Confidence, and DEWR Skilled Vacancies on Tuesday. Wednesday ends the week of data with New Motor Vehicle Sales. New Zealand releases Food Prices on Monday followed up with REINZ House Sales and Retail Sales on Tuesday. Business NZ PMI is up on Wednesday while Consumer Prices rounds out the week on Thursday.
China kicks off the data early with June's Trade Balance report set to be released on Saturday. The rest of the releases are all slated for Tuesday when we will see 2Q GDP, PPI, Money Supply, and Industrial Production.
Sterling is looking very attractive right now after an eventful 24 hours. The big news yesterday was the ambitious budget outlined by UK Chancellor George Osborne which sought to drag the UK finances back on track far sooner than markets had estimated; the austere plan of spending cuts (which will constitute the lion’s share of the deficit cutting, around 80%) and tax rises (the remaining 20%) has certainly appealed to the market as hitting an appropriate balance, and one which should keep the ratings agencies placated for the time being. Following up on this rather encouraging reception, this morning saw the release of the minutes from the most recent BoE meeting (recall that rates were left unchanged at 0.50% and no statement was released). Much as we had predicted at the time of the meeting, the murmurs about upside CPI risks were finally acknowledged and although some members still clutch onto the possibility of downside risks going forward, it seems that the prospect of persistently high inflation may be the more imminent concern. This much seemed like common sense; but the real shock of the minutes was the unexpected dissent of the BoE’s Sentence in actually calling for a 25bp hike in rates to 0.75%. Of course, Sentence is known to be a perennial hawk on the committee, and in retrospect, some clues were present in his interview with the Sunday Times 2 weeks ago; but should CPI continue to linger above 3%, then we would not be surprised if he was soon joined by other members of the committee in looking for tightening – a scenario that would be well ahead of the market’s expected timeline for UK rate rises, and extremely GBP-positive. Looking at the rest of the day, we have two further central bank events due in the form of the Norges Bank and Fed rate decisions. Interest rates in Norway are expected to remain unchanged at 2.00% this meeting as the Norges Bank assesses the effect of its three prior hikes since October and weighs up the impact of the European crisis on the Norwegian economy. At the last meeting back in May, the central bank raised rates 25bps but conceded in their statement that policymakers had considered leaving rates unchanged. This central banker-speak has effectively been translated to mean that an on-hold decision is almost certain this time around; and adding further credence to this assessment, the economic data out of Norway in the past month has been rather disappointing. Most focus will be on how the Norges bank adjust their forecasts for the path of interest rates going forward, with the forwards market already pricing in a much lower trajectory for rates in the remainder of the year. This evening, we think the FOMC meeting is also likely to be another non-event for FX markets, with no likelihood of a change in rates and very little alteration expected in the statement. As ever, the stock standard phrasing that interest rates will remain “exceptionally low” for an “extended period” is almost certain to stay, as well as the acknowledgement that in spite of an improvement in economic data, unemployment remains high ( 9.7% at the last reading in May). We will have to wait for the minutes of this meeting on 14 July before we can hear the juicier details of the FOMC’s discussion, in particular whether Hoenig’s opposition to the “extended period” rhetoric has gone any further to becoming a dissenting vote in favour of tightening; or indeed whether any other Fed members now want to drop the “extended period” phrase (Bullard the most likely candidate).
EurUsd EURUSD continued to drift lower yesterday as the S&P slumped towards a daily close below its 200-day moving average; however as we had hoped, 1.2240 support managed to catch the sell-off and from here we feel that a rebound is likely back towards 1.2350 levels. As discussed yesterday, none of the recent news or price action warrants a strong directional bias yet, so we are happy relying on 1.2240 as a range floor; especially considering it has the dual potency of being the 17 Jun lows and the 38.2% fibonacci retracement of the rally from 1.1876 – 1.2468. Should the sell-off breach that 1.2240 level however, then bears are likely to jump back into the market en masse (worth switching to a short position on the break-out), with next areas of demand anticipated around 1.2170 (where the 15 Jun lows coincide with the 50.0% fibonacci retracement), 1.2145 former pivot level, and then 1.2045 (11 Jun low). Until that point, we will buy on dips to 1.2240, expecting possible resistance around 1.2328 (23.6% fibonacci retracement) before the range ceiling 1.2350. Should bullish momentum continue through 1.2350, expect plenty of sellers to lurk around 1.2450-70 (28 May high at 1.2452, recent double top highs 1.2468).
GbpUsd Osborne’s super-ambitious budget yesterday looks to have set the right tone in the market and triggered a short squeeze in GBPUSD off the 1.4688 lows back up towards 1.4850. In contrast to yesterday’s bearish bias, we now see a possible bullish pennant on the hourly chart, so aim to go long on a break above 1.4840-50 with a stop around 1.4800, and set our target back at the psychologically important 1.5000 level. We are still wary that sellers may be poised to step in at the back side of the former 2-week uptrend (currently 1.4915), so it may be worth playing this a little conservatively and taking half our position off the table around there. What is encouraging however, is that unlike yesterday where the back side of the uptrend had the added protection of the 50-day moving average ahead of it, the rally yesterday has blasted us well clear of that indicator (1.4837 today) and indeed it should now act as a very weak support below. Next resistance beyond will be 1.4936 high from Monday morning. Key support on the downside is now yesterday’s low 1.4688, then 17 Jun low of 1.4645, with a break below there likely to open up a move to the 10 & 11 Jun lows around 1.4505.
UsdJpy It’s been all downhill since yesterday’s failed efforts to tackle the daily cloud cover (lower boundary now seen at 91.15); and with the 1-week downtrend still in command the pair has slumped all the way back down to 90.33. Thus far, we haven’t challenged Monday’s low at 90.26 so watch for this to provide support on a first touch, with the critical support below there at 89.80 – this latter level is doubly important today as it also coincides with the lower edge of the 1-week downtrend and as such might be worth a punt on the long side. Rebound rallies from here will meet trendline resistance at 91.15 (note this is identical to the base of the daily cloud cover) with the plethora of resistance levels mentioned yesterday just above; these are seen at Monday’s 91.48 high, the 100-day moving average at 91.57, and last Wednesday’s highs at 91.82.
UsdChf The back side of this old downtrend is providing a fantastic barrier to sell USDCHF into, and after going short at 1.1115 we got a nice extension down towards 1.1035 levels. The overnight rebound is a clear invite to repeat the process again, so we aim to sell just ahead of the trendline (now 1.1100), and aim for 50-60 pips of downside. We still feel that ultimately another re-test of 1.1000 is on the cards in this pair but with the prospect of an FOMC meeting later this evening we are wary to let greed get the better of us and would happily keep banking 50 pip profits where we can find them. 1.0998 is the reaction low seen at the start of the week in Asia (post-China de-pegging), but should the move extend further, next major support is expected at 1.0924-37. This area harbours not only the 10 May lows but also the 100-day moving average – and as such should be respected as a likely platform for a rebound on the first visit. Rallies will probably struggle back up towards the former trendline at 1.1100, with the 50-day moving average also hanging above at 1.1191.
The British Pound pulled back from a weekly high of 1.4765 as investors scaled back their appetite for risk, and the exchange rate may continue to trend lower during the U.S. trade as market sentiment falters.
The British Pound pulled back from a weekly high of 1.4765 as investors scaled back their appetite for risk, and the exchange rate may continue to trend lower during the U.S. trade as market sentiment falters. Meanwhile, the European Commission proposed to increase the supervision of credit rating agencies as they seek “increased transparency” for those firms, and said they will announce a detailed outlook of the plan later today as policy makers try to contain the debt crisis.
Trading Tactics
A clear uptrend could be an opportunity to Buy GBP/USD.
The buying point is at 1.4704; Pivot point is the take profit at 1.4880; Fibonacci 38.2% is the stop loss at 1.4560
The selling point is at 1.4540; previous support is the take profit at 1.4350; Fibonacci 23.6% is the stop loss at 1.4650
Technical: Sterling forms a higher high and continues the minor uptrend. A move back higher could set up a test of 1.4880
To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice MACD crosses the signal line upwards; Momentum and RSI (Relative Strength Index) are in an uptrend; stochastic oscillator is in overbought area.
*Analysis is for information purposes only and does not constitute advice in any form. Past performance is not an indicator of future performance. Trading in financial products carries a high degree of risk to your capital and it is possible to lose more than your initial investment.
With the Goldman Sachs story clearly fading from the markets collective memory and meteorology bugs sent back to the weather channel, investors once again had time to focus on Greece. Yesterday Greece raised €1.95 billion ($2.63 billion) through a 3-month Treasury- bill auction to yield 3.65%. While demand was firm and temporarily soothed investor concerns, today the 10yr yields climbed over 8.00% highlighting persistence fears. While Greece is reported to have the cash to pay its April debt, there are real worries regarding how the €8.5 billion bond, which matures on May 19th will be covered. While Soros' comments regarding Greece’s “death spiral” might be a tad extreme, there are still considerable barriers ahead of a meaningful resolution. In addition, ECBs Weber clarified that the €80bn Greece needed to avoid default was not his figure and he was merely using the number to illustrate that liquidity requirements were fluid and not that he had particular faith in that number. Today in Athens, EU and IMF officials will begin discussions on the bailout plan activation. Given the recent upward surge in yields and Bank of Greece Governor George Provopoulos support of a rescue, we believe in the next 10 days the EU / IMF safety net will be activated. EURUSD has been under significant pressure and with most of the negative news already priced in, a bailout should give the EUR a boost short term. The big news yesterday (outside corporate earnings) was the considerably more hawkish Bank of Canada's accompanying statement. The BoC held rates steady but dropped its conditional commitment to stay neutral until July, and added that conditions were right to remove monetary stimulus. We had believed a few central banks including the BoC (RBNZ and Riksbank) had fallen behind the curve and are now expecting their catch up to give the underlying currencies a lift.
Today's Key Issues (time in GMT): 00:00 EUR EU-IMF delegation in Athens, meetings could last 2-3 weeks. 08:30 GBP BoE MPC April 7-8 meeting minutes. 08:30 GBP Mar claimant count, -10k eyed; last -32.3k. 08:30 GBP Feb ILO unemployment, 7.8% eyed; last 7.8%. 08:30 GBP Feb avge weekly earnings, +2.5% eyed; last +0.9%. 12:30 CAD Wholesale Trade Feb +0.7% exp , prev +3.0% 23:50 JPY Trade surplus, bn yen
EurUsd EURUSD just can’t seem to get a break lately, as even the slightest glint of bullish momentum is soon quashed by fresh concerns that a potential bailout of Greece might not be workable, or that it may drag the rest of its Eurozone counterparts down into the mire with it. Looking at the technical picture, the situation is very similar to GBPUSD in recent days; whereby the sell-off has punctured a relatively nascent uptrend, but thus far, not given us a conclusive break lower. In fact, the rebound off 1.3399 lows has been rather impressive all things considered (back above 1.3440), and looking at the daily chart we can still see a robust uptrend in the 14-day RSI which suggests the bears simply do not have the gumption to push this one much lower right now. For the time being, long punts should be attempted only with very tight stops –the next level below is at 1.3385 and is really the last area of bids before the former downtrend at 1.3330. The major support at 1.3268 (last seen 25 March) is likely to hold on a first visit but once back inside the old downtrend we would have to concede that this bullish break-out is over. Resistance levels on the topside will be 1.3450 which has acted as a minor pivot level in past days, then yesterday’s highs of 1.3523. Above 1.3523 we like the pair higher, and look for an imminent re-visit of 1.3590.
GbpUsd Another higher than expected UK CPI figure yesterday gave GBPUSD a supercharged shot of adrenaline; ramping the pair up to highs of 1.5433 –and quickly vanquishing the doubts over Monday’s breach of the 1 month uptrend. We now feel more comfortable attempting long entry on dips towards 1.5300; expecting first buying interest at 1.5320 and uptrend support now at 1.5285. Today’s data calendar is almost exclusively UK oriented, but it is unlikely we get any new information from the BoE minutes, and only a significant deviation from ILO unemployment expectations is likely to budge this pair away from technical drivers. As long as uptrend support holds, we fully expect another visit to 1.5525 (15 April high) in due course, and only really a break below 1.5285 would force us to consider the prospect of another move lower. Next supports below the uptrend are seen at 1.5254 (50-day moving average), 1.5190 (19 April low), then 1.5130 (6 April low).
UsdJpy USDJPY has looked scintillating this week, having rallied nearly 2% off the lows of 91.60 and twice nudged highs of 93.40. Not only has this move broken a 2-3 week downtrend channel, but we have also seen a re-test of the back side of that channel repel further sell-off –a development we see as bullish for even further upside in the coming days. We do have to be wary of any moves back down below 92.95 –which could potentially mean an ultra short-term double-top pattern (with target below at 92.50) –but we feel there is decent support to be expected between here and 92.50 which should prevent an all-out capitulation; the first of this levels comes in at 92.90 (back side of the 2-3 week downtrend today), then 92.85 major pivot level. On the topside, the next real resistance level is 93.77, but given our strongly bullish bias we would be happy holding on to longs and waiting for a re-test of 94.79 (4 April high). Any break above 95.00 opens up a lot of targets in the region of 97.00, and beyond. Hold tight!
UsdChf USDCHF is still a range-bound pair for now between 1.0434 - 1.0810; but recent price action may have provided some evidence that the range is narrowing into a symmetrical triangle on the hourly chart. Next resistance levels above come in at the upper edge of the triangle and yesterday's highs of 1.0710, then 1.0750 (25 March highs), and 1.0810 levels last seen at the beginning of March. First support expected at yesterday’s lows around 1.0600, then the lower edge of the triangle at 1.0540 before last week’s lows of 1.0500. Our medium term bias remains neutral until we see price developments take a more directional turn.
The bearish slant is broken (red line). The super trend got bearish and made us cut our position. Indicators are currently getting bullish. However, the parity seems to move into a bearish channel. We advise to trade again short positions as far as 1.0234 is resistance. However, the break out of this level will give a buy signal.
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3585 level and was capped around the $1.3740 level. The common currency came off significantly amid rumours the Federal Reserve planned an intermeeting increase in the discount rate later today. While a move in the discount rate would probably not have a major impact on market liquidity – such a move would be largely symbolic – it would be the latest indication that policymakers are looking to normalize policy as much as possible without lifting the federal funds target rate. The Fed’s balance sheet increase US$ 25.5 billion last week to US$ 2.31 trillion. Also weighing heavily on the common currency was a report that Greek Prime Minister Papandreou called on the European Union to indicate how much and what type of financial assistance would be available if Greek requires help in addressing its mammoth fiscal imbalances. Germany apparently backtracked on the issue and instead of suggesting aid some could from a European Union partner or bilateral credit facility, Berlin is said to now support assistance from the International Monetary Fund. Some believe the IMF may not be able to provide enough financial assistance to Greece. European Union officials are planning to convene at a summit next week and this topic will be prominent. Earlier in the week, the European Union signaled it was ready to provide financial assistance to Greece if required. Data released in the eurozone today saw the EMU-16 January current account balance print at -€8.1 billion compared with the revised prior reading of +€ 2.3 billion. Also, the eurozone trade balance worsened to -€8.9 billion from the revised reading of +€ 4.4 billion. In U.S. news, the February consumer price index was up 0.0% m/m and 2.1% y/y while the ex-food and energy core rate was up 0.1% y/y and 1.3% y/y. Additionally, weekly initial jobless claims fell 5,000 to 457,000 while continuing jobless claims grew to 4.579 million. The Q4 current account deficit worsened to –US$ 115.6 billion, the Philadelphia Fed March index rallied, and February leading indicators fell back to +0.1%. Overall, U.S. economic data continue to be mixed-to-better but there does not appear to be any traction evident in the U.S. labour market yet. Federal Reserve Chairman Bernanke criticized the so-called Dodd plan for regulatory oversight that seeks to limit the Fed’s regulatory and supervisory powers. Euro bids are cited around the US$ 1.3335 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥89.75 level and was capped around the ¥90.80 level. Bank of Japan kept its economic assessment unchanged for a fourth consecutive month, reporting the economy is “picking up.” The central bank also upped its assessment of business investment, adding it is “leveling out on the whole.” Reuters released its quarterly corporate sentiment survey ahead of the release of next month’s quarterly Tankan survey and it evidenced a significant increase in business confidence. Yesterday, Bank of Japan expanded its quantitative easing program. The central bank doubled its three-month lending facility to ¥20 trillion. The move is not likely to have a significant impact on the real economy and may marginally increase liquidity. The Policy Board vote in favour of the expansion was split and this suggests it may be difficult for BoJ policymakers to ease policy further, no matter how much pressure the government applies on the central bank. Data released in Japan overnight saw the January leading index decline to 96.7 from 97.1 while the January coincident index improved to 100.1. Data to be released overnight include February Tokyo-area department store sales, February nationwide department store sales, and the January all-industry activity index. “Mr Yen” Sakakibara reported the U.S. dollar is still the global dominant reserve currency and said the U.S. appears to be moving away from its long-standing U.S. “strong dollar policy.” The Nikkei 225 stock index lost 0.95% to close at ¥10,744.03. U.S. dollar offers are cited around the ¥94.75 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥122.65 level and was capped around the ¥124.25 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥137.00 figure while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥84.75 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8264 in the over-the-counter market, up from CNY 6.8259. People’s Bank of China reported the first quarter business climate index rose 2.2% q/q, the fourth quarterly expansion. U.S. Ambassador to China Huntsman verbally intervened today, saying the U.S. “hopes to see more flexibility on the exchange rate. I would be misleading you if I left you with the impression that this wasn’t a very, very important issue in the United States, and will continue to be. We’ll see how the next few weeks play out.” The central bank is expected to tighten monetary policy further imminently and there is talk that final private demand in China is increasing.
₤
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5215 level and was capped around the $1.5325 level. Data released in the U.K. today saw the March CBI quarterly industrial trends survey improve to -37 from the prior reading of -39. February public sector net borrowing rocketed higher to £12.0 billion with the public sector net cash requirement at £7.7 billion. Also, February mortgage approvals came in at 48,000. Bank of England yesterday reported it is considering an extension of the eligible collateral at its discount window. Cable bids are cited around the US$ 1.4455 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the US$ 0.8915 level and was capped around the £0.8970 level.
CHF
The Swiss franc weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0645 level and was supported around the CHF 1.0530 level. Data released in Switzerland overnight saw Q4 industrial production rise 6.4% q/q and decline 1.1% y/y while the February trade surplus declined to CHF 1.29 billion from CHF 2.42 billion. The euro/ Swiss franc cross came off to a fresh sixteen-month low amid declining expectations of additional Swiss National Bank intervention. Also, the March ZEW expectations index climbed to 53.8 from 52.5 in February. The euro came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4355 level while the British pound moved lower vis-à-vis the Swiss franc.
The parity continues its bearish movement. We maintain to trade only short positions as far as the super trend is bearish. The break out of 1.0070 will give a new sell signal. However, if the super trend get bullish, we will stay neutral between 1.0150 and 1.0232.
Interest Rates Announcements from Japan and the U.S. Expected this Week
The Dollar and the Yen, the two strongest currencies of last week's trading session, are likely to be shaken this week, as interest rates announcement from both the U.S. and Japan are expected. Any manipulation of rates by any of the two is likely to have a massive impact on the market. This could provide unique opportunities for high profits, and traders should use this extraordinary week in order to boost profits.
Economic News
USD - Dollar Soars on Positive U.S. Data The Dollar rose significantly against the major currencies during last week's session. The Dollar corrected some of its losses from previous weeks, especially against the Euro and the Pound. The Dollar rose over 300 pips against the Euro and over 200 pips against the Pound, all in one week.
The Dollar's bullish trend came as a direct result of the positive data from the U.S. economy. Last week began with a superb, unexpected Long-Term Purchases publication. The Long-Term Purchases report measured the difference in value between foreign long-term securities purchased by U.S. citizens and securities purchased by foreigners during November. The end result rose from $19.3 billion in October to $126.8 billion in November, beating expectations for a $30.3biliion result. The stunning figure came due to a record bond purchases by private investors. This showed that foreign investors have deep faith in the U.S. economy, which of course strengthened the Dollar. Throughout the week, additional positive economic data was published, showing that the Building Permits issued during December for new residential buildings reached above expectations, and that the Producer Price Index continues to rise as well. As long as the cheering data regarding the U.S. economy continues to flow in, the Dollar's bullish trend is likely to extend.
As for the coming week, the most intriguing economic publication from the U.S. will probably be the Federal Funds Rate on Wednesday. The Federal Funds Rate is in fact the Fed's Interest Rates announcement for the following month. Currently the Fed is likely to keep rates at their low level. However, if the Fed will surprise and hike rates, it could boost the Dollar to levels not seen in months.
EUR - Euro Drops on All Fronts The Euro fell significantly during last week's trading session. The Euro saw bearish trends against most of the major currencies, including the Dollar, the Yen and the Pound. Its strongest drop was marked against the Yen, as the
EUR/JPY pair dropped to the 127.00 level. The week began with rather disturbing news from the German economy. The German ZEW Economic Sentiment fell from 49.8 points from December to 47.2 in January. The Economic Sentiment is a survey that attempts to rate the next 6-month economic outlook for Germany. This report is considered to be quite reliable, and tends to have a large impact on the market. Due to the fact the Germany holds the biggest and strongest economy in the Euro-Zone - the unfortunate figure was likely to weaken the Euro. The German economy saw another disappointing data release last week, as the German Flash Services Purchasing Managers' Index failed to reach expectations of 53.1 points result, as the end result showed 51.2. This means that the level of business conditions, such as employment, production and new orders have declined during December. The Euro is greatly affected by the German economy, and a series of disappointing data from Germany has weakened the Euro.
Looking ahead to this week, the German economy continues to be the main attraction for Forex traders. Traders should give special attention to the German Business Climate report on Tuesday. Following last week's data, further negative publications from the German economy could continue damaging the Euro. However, if the end result will reach expectations for a 95.2 figure, it is likely to support the Euro.
JPY - Yen's Bullish Trend Continues; Ahead of Interest Rates Announcement The Yen continued to strengthen last week. The bullish trend which was initiated a couple of weeks ago, proceeds against most of the major currencies. The Yen's sharpest rise was against the Pound, as the GBP/JPY pair fell to the 145.00 level.
What appears to impact the Yen the most lately are the statements delivered from the Japanese leadership, especially from the Bank of Japan (BoJ). Last week, the BoJ Governor Masaaki Shirakawa said on Monday that the BoJ is aiming to maintain an extremely accommodative financial environment in Japan. This has aroused speculations for greater investments in Japan, and has contributed to the Yen's rising trend. However, the Japanese Finance Minister Naoto Kan stated on Thursday that he would prefer to see a weaker Yen in the future. It is known that the Japanese leadership aims for a weak Yan as a resolution against the decline in Japanese exports. If this target will remain in-place, the Yen will eventually drop as a result.
As for the week ahead, the most impacting dada from the Japanese economy is likely to be the Overnight Call Rate on Tuesday. The Overnight Call Rate is the Japanese Interest Rates Announcement. Currently, expectations are that the BoJ will keep rates at 0.10%, the lowest in the industrial world. If this will indeed be the case, traders are advised to follow the BoJ statement which follows promptly, as these releases tend to have large impact on the Yen.
Crude Oil - Crude Oil Drops to $74.06 a Barrel Crude Oil continues to decline sharply. With the beginning of last week, Crude Oil was traded at $78 a barrel, however as the week progressed, the prices of Oil fell, and a barrel of Crude Oil is now traded for around $74.50.
Two reasons led to Crude Oil's downfall last week. The first reason is the strengthening Dollar. Crude Oil is traded in Dollars, and thus, whenever the Dollar rises, Crude Oil is likely to depreciate as a result. In addition, the American administration's plan to bar banks from trading for their own accounts had a negative impact on stocks, which also contributed to the weak Oil.
As for the week ahead, traders are advised to follow the leading publications from the U.S. and the Euro-Zone's major economies, as they are likely to impact Oil the most. In addition, traders should also follow the Crude Oil Inventories report on Wednesday, as it tends to have an immediate impact on the market.
Technical News
EUR/USD The pair is currently trading in neutral territory, but traders will want to pay close attention as the 4-hour RSI chart shows the pair approaching overbought territory. This sentiment is supported by the RSI on the 2-hour chart. Still, traders may want to take a wait and see approach regarding this pair today.
GBP/USD The 8 hour RSI is floating in the oversold territory with the chart's Slow Stochastic exhibiting a bullish cross. A bullish cross is also evident on the daily Slow Stochastic as well as the 2 hour MACD. Going long for the day may be a good option.
USD/JPY A bullish cross is evident on the 8 hour and 4 hour charts' Slow Stochastic while the 4 hour and daily RSI are floating in the oversold territory. A bullish cross is also evident on the 2 hour MACD. Going long for the day may be advised. USD/CHF The pair is exhibiting some mixed signals. While the hourly chart's Slow Stochastic is exhibiting a bullish cross and the 4 hour RSI is headed towards the oversold territory, the daily chart's RSI is headed towards the overbought territory and an impending bearish cross is evident on the 8 hour MACD. Going long with tight stops may be a good choice today.
The Wild Card NZD/USD The pair's 8 hour and daily RSI are floating in the oversold territory with the daily charts Slow stochastic exhibiting a bullish cross. Furthermore, a bullish cross is evident on the 4 hour MACD. Forex traders are advised to go long for the day.
The bearish movement continued and a new sell signal has been given by the break out of the super trend. The parity is currently testing its support at 0.7290 and if this level is broken, a new sell signal will be given. We maintain to trade only short positions as far as 0.7335 is resistance.
Our range has been broken from the bottom at the opening. 0.7365 was broken. Then, the bearish gap (as it is usually) has been filled in. So, we will now advise to trade only short positions as far as 0.74 is resistance on the parity NZD/USD. A new sell signal will be given if the super trend on a 4H timeframe become bearish. However, if 0.74 is broken, we will stay neutral between 0.74 and 0.7435. If 0.7435 is broken, a buy signal will be given.
Concerns over Dubai World quasi-sovereign debt restructuring situation was still haunting risk correlated trades in the Asian session. And combined with thin liquidity has made for a volatile Friday. Asian equities markets were lower across the board, with the Hang Seng falling -4.8%. US 10yrs Trsys have gapped down to 3.20%, while Gold is down nearly $50 from Thursday's high. USD has seen invigorated buying, with EURUSD slipping to 1.4828 at the time of writing. The other big gainer, to the alarm of Japanese policy makers, has been the JPY. MoF intervention rhetoric increased significantly and Finance Minister Fujii provided markets his harshest warning yet, saying that "appropriate measures" were now justified as there was "no doubt the market has moved too far in one direction" and current FX moves were “extreme”. He also said that speaking with US and European officials to coordinate an international response would be a possible direction. News wires were citing market sources, which say BoJ was seen in the market checking rates in cross-JPY. The increased interventions risks seem to help, as the USDJPY bounce of the 84.83 low trading up to 86.83. On the economic front, the jobless rate fell unexpectedly from 5.7% in July to 5.5% in August and 5.3% in September while real household spending rose 1.6% y/y in October. While the Dubai story is still evolving, we expect at present, the knee-jerk fear of a systemic collapse are over blown. On the surface, the numbers, while large, are not unmanageable especially given Dubai's close relationship with cash heavy Abu Dhabi. And unlike in 2008, where policy makers were caught off guard, this time they are prepared and would respond with decisive action to prevent an extended market disruption. And in a move to control damage H.H. Sheikh Ahmed bin Saeed Al-Maktoum, Chairman of the Supreme Fiscal Committee, issued a statement yesterday reaffirming / clarifying the Dubai Government's intention to intervene directly and supervise the restructuring of Dubai World's debt obligations. What this event does highlight is the tendency for short term traders to cut positions at a moments concern, making risk correlated rallies very fragile.
Today's Key Issues (time in GMT): 08:30 SEK GDP, % q/q Q3 0.2 (-6.1) prior 08:30 SEK Retail sales, % m/m Oct 0.2 (2.6) prior 09:00 PLN GDP, % y/y 3Q 1.1 prior 10:00 EUR Consumer confidence, index Nov -17 exp, -18 prior 10:00 EUR Industrial confidence, index Nov -19 exp, -21 prior 10:30 CHF KoF leading indicator Nov 1.45 prior 14:00 MXN Banxico rate decision, % Nov 4.50 prior / exp
The Risk Today:
EurUsd Having triggered stops on the topside earlier week, EURUSD has failed to maintain its upward momentum and since collapsed through previous resistance-turned-support around 1.4975 to touch a low of 1.4828 (just below the 50 day moving average at 1.4835). We will need to see a breach of major support (and lower bound of the previous range) at 1.4800 to ensure a continuation of the correction; and a close through 1.4626 (3 Nov lows) would likely signal we have seen top for this leg of the rally. Although a further sell-off through 1.4489 will likely accelerate the downside move, the longer term uptrend remains valid as long as we stay above 1.4135. Key resistance on the topside lies at 1.5144 recent highs.
GbpUsd The bearish bias remains for GBPUSD as the break below the 100-day moving average at 1.6395 suggests that the uptrend from 1.5708 (Oct 13 low) to 1.6875 is now over. Expect fresh selling interest ahead of 1.6746 Wednesday highs, and look to 1.6250 downside target below which represents a major support for the pair. A break below 1.6250 would expose 1.6130 previous resistance-turned-support, and target 1.5700-50 area last seen in early October (1.5705 key support).
UsdJpy USDJPY’s sell-off has continued overnight, spiking through the bottom end of the 8 month trend channel around 86.30 to touch lows of 84.83. We have since traded back into the channel at the start of the European session, but expect any subsequent corrections to be capped by decent supply at 88.20
UsdChf Like EURUSD, USDCHF failed to sustain its recent break out, but more specifically; this morning’s sharp reversal above 1.0175 levels suggests a major double bottom scenario could be materializing with a potential neckline coming in at 1.0340. A break above this level would look to target another look above 1.0700 levels, and really the USDCHF bears will need to see another dip below 0.9918 previous lows to negate this outlook.
88.75 is back as support and the bearish slant is close to be broken. However, we will wait the close of the current candlestick before taking long positions. The break out of the super trend will comfirm the buy signal and the way to 90.22 will be then open. As far as the price is above its slant, we will advise to trade only long positions. If a break out occur, a return on 88.75 is expected.
The break out of 91.00 lead to a corrective movement which stopped on the supertrend. Then, the bearish movement took up and 91.00 is back as resistance. Currently, the parity is testing the lowest of september 11th and 13th. Indicators are getting bearish and a pursuit of the movement is expected towards 90 and 89. We will advise to trade only short positions as far as the midline of the bearish channel is resistance (dotted line). If a break out occur, a return on 91.00 is expected.
The parity move around our key level at 94.50. After a short break out, 94.50 is now back as resistance. As far as this level is resistance, we advise to trade only short positions towards 93.30 in the first time. We wil wut our positions if 94.50 become again support. To trade long positions, we will wait for a bullish super trend because this one acted as resistance the last time.
Most of indicators are bearish and the price got out of its bullish channel. So, we are bearish on the parity with a first objective at 1.0670 and 1.06 in extension. Most careful people could wait for a bearish supertrend before taking short position on the parity, indeed this one seems to give support to the price.
The parity do not succeed to cross over the psychological level of 1000 points. This area is the major resistance. The closest support is around 890, level 38.20% of fibonacci retracement of the last bullish movement started on November 2008 and ended at the end of February 2009.
Currently, the RSI indicators provides best buy/sell signals, due to slant which are formed and then broken. Numerous changes of super trend show that the parity doesn't have a real trend at this time. Indeed, moving averages are starting to be overlayed and without any slope.
The super trend is now bullish and the price just hit 97.00. Although some indicators are getting bearish, a bullish slant is giving support to the price. As far as this one is support, a test of 97.10 is expected. Otherwise, a return on 94.50 will be our objective if the slant is broken.
