Forex: Euro Pushes EURUSD to 1.3600 as Inflation Eases ECB Speculation

Dollar Volatility Falls Back to Breakout Warning Levels

While EURUSD and GBPUSD offered up the dollar notable losses, the benchmark currency on a market-wide basis was little changed through this past session. That is to be expected with both risk trends and Fed Taper speculation on hold during the holiday trading period. As would be expected of this lull, we have seen activity levels (measured rudimentarily via the average true range) drop to lows not seen since October16. The comparison is an appropriate one as that previous period of quiet preceded a meaningful breakout and trend development for the benchmark currency. Yet, a ‘breakout’ in these market conditions is not enough to derive a meaningful trade from – much less develop the foundation for a lasting momentum. We need fundamental backing that may not emerge until next week.

As always, the greatest potential for the dollar and markets at large is a possible change in risk trends. Looking to the S&P 500 as a barometer for investor sentiment, we see congestion that look suspiciously prone to a jump start of its own. A downdraft in risk appetite could blow a wide hole in the market – and generate a serious bid for the dollar – but that lean has continuously eluded us. Furthermore, we will enter the final trading month of the year next week, and December is historically the best month for US equity gains. Looking at the docket, there are a few bottom-tier indicators scheduled for release; but the real interest is in what we will find next week. Manufacturing, housing, services and trade figures are all important; but the stimulus wars for the global economy will ensure Friday’s employment statistics (NFPs and jobless rate) are the market’s primary focus.

Euro Pushes EURUSD to 1.3600 as Inflation Eases ECB Speculation

The euro managed to gain enough traction this past session to push EURUSD 1.3600. The performance was noteworthy in part because the fundamentals were uneven. On the docket, we were presented with a 10,000-payroll increase in German Unemployment which was worse than expected. Alternatively, Euro-area confidence indicators showed a pick up in the first readings of economic and business sentiment. The market’s real interest, however, rested in the German inflation figures. As the largest economy in the region, Germany’s health is seen as a guide for Europe. That is encouraging for rate watchers who witnessed an unexpected pick up in the November CPI figures. The 1.3 percent core reading curbed a steady deflating trend while the 1.6 percent core reading was the biggest beat in years.

This data carries particular weight because the upcoming session brings the same two data series that led the market to sell the Euro off aggressively last month: the Eurozone CPI and employment figures (10:00 GMT). This scenario is remarkably similar to what we witnessed last month…and the stakes are higher. With the ECB rate decision due next week and the market still reeling from the surprise rate cut at the last meeting, speculation is now turning to the possibility for more stimulus out of Europe which would materially undermine the currency’s recent appreciation. If the inflation report is softer than expected, it would significantly amplify expectations for another LTRO-like program to replace the stimulus effort that is currently being reduced.

Yen Crosses Ready for Data Run, Stimulus Speculation

A dense round of event risk is scheduled for the Japanese yen this morning, and the market is more than willing to pick back up an important fundamental theme for the currency: stimulus. The yen crosses are up across the board for the month (GBPJPY leading the charge with a 6.0 percent advance) due in large part to expectations that the Bank of Japan will offer a follow up stimulus program to this past April’s unprecedented injection. A situation that is remarkably similar to the epic advance in these crosses the same time a year ago in anticipation of the same fundamentals we see now, the market is absorbing all evidence of new stimulus. This morning’s unemployment rate, household spending, manufacturing activity and especially inflation data will help improve the probability scheme for this speculation. If the National CPI figure picks up materially above the 1.1 percent pace, it could feed fear that the second round of stimulus may not be needed. Alternatively, a miss only solidifies the need and pushes for a nearer time frame.

British Pound Muscles Higher after BoE Financial Stability Report

Bank of England Governor Carney delivered the policy group’s Financial Stability Report Thursday. The report noted stability risks from debt levels on the sovereign and household level, but the authority didn’t seem too concerned with an imminent threat. What many were latched on to was the Funds for Lending Scheme’s alternation such that it would not be used to fund mortgage lending – a step to curb the bubble they do not see. This is a dubious move in its ability to cool what is undoubtedly a problem, but the market took it as a positive step regardless. GBPUSD extended its move – though moderately – above 1.6250. Coming up, we have lending figures and mortgage approvals.

Canadian Dollar Steady Through Trade Miss, Unlikely to Write Off GDP So Readily

Canada’s current account deficit was larger in the third quarter than was expected. The C$15.5 billion shortfall missed expectations to tighten and the previous reads was increased. That being said, the currency managed to hold steady. It will be more difficult to overlook the upcoming data: September and 3Q GDP figures. For CAD pairs with immediate breakout risk, this could be interesting.

Australian Dollar Finally Posts Positive Day, But Will Rate Forecasts Stick?

The Australian dollar was up against all of its counterparts this past session, but there was little momentum behind the bullish endeavor. AUDUSD’s first advance in seven trading days is a good allegory for the individual currency’s performance – pushed consistently lower, there was room for moderation. Rate expectations are still the currency’s best opportunity for gains moving forward and the RBA is due next week.

Gold Carves Wide Range in Holiday Trade, But Still Missing Momentum

A $22.19-range for gold was notable given the holiday-dampened trading conditions. However, an increase in intraday activity didn’t offer the metal a meaningful bearing one way or the other. The market will weigh anti-currency sentiment in the upcoming session with the Eurozone inflation data, but the real interest is fixed on Fed Taper speculation next week related to the NFPs.

Post Thanksgiving Black Friday Buzz Lifts Currencies and Equities

It is pretty astounding that most major of the currencies are unchanged or trading higher against the U.S. dollar this morning because overnight economic reports from Asia and Europe fell short of expectations. German retail sales declined for the second month in a row while industrial production in Japan grew at a much slower pace than economists had anticipated. EUR/USD, GBP/USD and USD/JPY even touched new highs during the Asian trading session before giving up part of their gains in Europe and early North America. Fresh multiyear highs were also seen in the Yen crosses. Part of the reason investor appetite is so resilient is because U.S. stocks are trading at record levels this morning. With no U.S. economic reports on the calendar and many traders still out of the office, currencies and equities are benefitting from the post Thanksgiving, Black Friday buzz.

From a technical basis, the uptrend in most of the major currency pairs remains intact but from a fundamental perspective we can’t ignore the downside surprises in European data over the past 48 hours. Not only did German retail sales drop 0.8% in October (economists were looking for a 0.5% rise) but unemployment rolls increased by 10k last month. Earlier this week, it appeared that Germany would carrying the region to recovery and is a problem in of itself because this is not sustainable but German consumers have now cut spending 4 out of the last 5 months. Consumer spending in France also dropped for the third month in a row by 0.2% and like Germany this represented the fourth monthly decline in five months. It is this weakness in demand that makes us skeptical of the EUR/USD rally because if spending does not rebound in the fourth quarter, the ECB will be forced to seriously consider the need for negative rates.

The Japanese Yen on the other hand extended its losses against the dollar and most of the major currencies this morning but is struggling to hold onto its gains amidst the decline in the Nikkei and weaker industrial production. Economists had been looking for manufacturing activity to rise 2% but it increased a mere 0.5% in the October. The drop in Japanese stocks would have been larger if not for the improvement in production outlooks. Also the manufacturing PMI index increased and consumer prices rose at a faster pace. However the Japanese government still has a lot of work to do if they want to maintain the current level of recovery with spending growth slowing and the jobless rate rising. The general belief is that this slowdown will be temporary because the economy is expected to rebound strongly over the next 4 months.

For the rest of the day, we don’t think anything will compromise the existing movements in currencies and equities. Next week traders need to be more careful because there are a number of important economic reports on the calendar that could determine whether these trends continue or fade.

Post Thanksgiving Black Friday Buzz Lifts Currencies and Equities

It is pretty astounding that most major of the currencies are unchanged or trading higher against the U.S. dollar this morning because overnight economic reports from Asia and Europe fell short of expectations. German retail sales declined for the second month in a row while industrial production in Japan grew at a much slower pace than economists had anticipated. EUR/USD, GBP/USD and USD/JPY even touched new highs during the Asian trading session before giving up part of their gains in Europe and early North America. Fresh multiyear highs were also seen in the Yen crosses. Part of the reason investor appetite is so resilient is because U.S. stocks are trading at record levels this morning. With no U.S. economic reports on the calendar and many traders still out of the office, currencies and equities are benefitting from the post Thanksgiving, Black Friday buzz.

From a technical basis, the uptrend in most of the major currency pairs remains intact but from a fundamental perspective we can’t ignore the downside surprises in European data over the past 48 hours. Not only did German retail sales drop 0.8% in October (economists were looking for a 0.5% rise) but unemployment rolls increased by 10k last month. Earlier this week, it appeared that Germany would carrying the region to recovery and is a problem in of itself because this is not sustainable but German consumers have now cut spending 4 out of the last 5 months. Consumer spending in France also dropped for the third month in a row by 0.2% and like Germany this represented the fourth monthly decline in five months. It is this weakness in demand that makes us skeptical of the EUR/USD rally because if spending does not rebound in the fourth quarter, the ECB will be forced to seriously consider the need for negative rates.

The Japanese Yen on the other hand extended its losses against the dollar and most of the major currencies this morning but is struggling to hold onto its gains amidst the decline in the Nikkei and weaker industrial production. Economists had been looking for manufacturing activity to rise 2% but it increased a mere 0.5% in the October. The drop in Japanese stocks would have been larger if not for the improvement in production outlooks. Also the manufacturing PMI index increased and consumer prices rose at a faster pace. However the Japanese government still has a lot of work to do if they want to maintain the current level of recovery with spending growth slowing and the jobless rate rising. The general belief is that this slowdown will be temporary because the economy is expected to rebound strongly over the next 4 months.

For the rest of the day, we don’t think anything will compromise the existing movements in currencies and equities. Next week traders need to be more careful because there are a number of important economic reports on the calendar that could determine whether these trends continue or fade.

Forex: Euro Pops on German Coalition Deal, Pound Eyeing GDP Data

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The Japanese Yen underperformed as Nikkei 225 futures advanced in overnight trade, sapping haven demand for the safety-linked currency. The move may have reflected a pickup in risk appetite on the back of ebbing concern about a near-term “tapering” of the Federal Reserve QE3 stimulus program after a disappointing set of US economic data. November’s Consumer Confidence reading fell short of economists’ forecasts (as we expected), dropping to the weakest level in seven months.

The Euro edged higher – touching a monthly high – as German Chancellor Angela Merkel and her CDU party reached a coalition agreement with rival SPD. This introduced a sense of political stability in the Eurozone’s largest economy. Key Eurozone initiatives delayed by the absence of an administration in Berlin – notably, a banking union that includes region-wide supervision and a uniform resolution mechanism for troubled lenders – may now continue to progress.

A revised set of third-quarter UK GDP figures headlines the economic calendar in European hours. Expectations call for confirmation of initial estimates that showed the economy added 0.8 percent in the three months through September, marking the strongest performance since mid-2010. The outcome may not offer much of a lift to the British Pound.

Indeed, firm economic data means relatively little for Sterling if it doesn’t translate into policy tightening expectations. This was precisely the message delivered to Parliament’s Treasury Committee by BOE Governor Mark Carney yesterday.The central bank chief stressed that the objective of the Bank’s forward-guidance regime – a scheme whereby it has pledged not to consider rate hikes at least until unemployment falls to 7 percent – was to disconnect improving economic data from rate rise speculation.

Later in the day, the spotlight turns to the US data docket anew, where October’s Durable Goods Orders report is on tap. Expectations point to a 2 percent decline from the prior month, marking the first drawdown in three months. That may further scatter near-term Fed QE reduction bets and compound downward pressure on the US Dollar after the benchmark currency pulled back having set a monthly high, as expected.

USDCAD at key resistance which could determine direction

USDCAD is trading somewhat sideways today, consolidating below a major level of resistance. The pair certainly could break above given the strength of the greenback across the board in recent days. However, should resistance hold or not will be key in understanding the direction of this pair going forward.

The weekly chart below shows the gravity of the current resistance level, which dates back to the back end of 2011. The level of 1.6 represents the price around which the red descending trend-line meets today’s candle. Given that this is also a notable number, there is further resistance around this level. One sign that there could be a possible break of this trend-line comes in the form of the CCI indicator which is today attempting to break the green descending trend-line. This could point to a possible upside strength which brings into question the possibility of an upside break.

The four hour chart shows the pair has seen flag and pennant formations on the move up to the current price level. This appears to be occurring again today, where the 1.6 level represents the upper threshold of the most recent flag. Should we see this manage to break out and close above this level, I would be feeling very bullish for the pair going forward. However, until this occurs, I expect to see a pullback at this key level.

About Joshua Mahony

Joshua Mahony is Research Analyst at Alpari UK. Having joined in 2012, Josh’s previous experience in the industry includes time spent on the trading floor at Barclays Capital and working for Deutsche Bank in New York for a year. Originally coming from an economics background, Josh then traded equities in the wake of the 2007/2008 financial crisis. He is now turning that experience towards the forex markets. Josh writes market commentary that has featured on websites and publications including the Financial Times, Reuters, the Guardian, ABC News, CityAM, the Washington Post and the Miami Herald.

EURUSD support turns resistance

The EURUSD pair have been trading higher again this morning following the lead from the GBPUSD in breaking to the upside. While this points to a bullish outlook for the pair, there are signs that we could see a pullback in todays session.

The four hour chart below shows that the pair has recent engaged with the green ascending trend-line which represents a previous key area of support and recent resistance. The previous occasions that this trend-line has been challenged has typically led to a reversal of sorts in the short term and this seems possible again today. The stochastic oscillator is overbought and turning back to the downside, whilst the CCI indicator is attempting to break back below 100 in a bearish move. Should we see a pullback the initial level of support would come at 1.357 and the 200 period SMA.

About Joshua Mahony

Joshua Mahony is Research Analyst at Alpari UK. Having joined in 2012, Josh’s previous experience in the industry includes time spent on the trading floor at Barclays Capital and working for Deutsche Bank in New York for a year. Originally coming from an economics background, Josh then traded equities in the wake of the 2007/2008 financial crisis. He is now turning that experience towards the forex markets. Josh writes market commentary that has featured on websites and publications including the Financial Times, Reuters, the Guardian, ABC News, CityAM, the Washington Post and the Miami Herald.

Will USD/CAD Fail at 1.06 Once Again?

This has been a terrible week for the commodity currencies. The Canadian, Australian and New Zealand dollars were hit hard by weaker economic data, U.S. dollar strength and in some cases, talk of FX intervention. Throughout the week, the focus has been on the more than 2.5% slide in the Aussie and Kiwi vs. the greenback. Most traders on the other hand have ignored the moves in the Canadian dollar because USD/CAD is up only 0.6%. However the more moderate sell-off in the CAD does not make the breakout in USD/CAD any less significant. In fact, USD/CAD rose to a 4 month high today whereas the AUD/USD and NZD/USD are only trading at 2 month lows. Thursday was also the first time in 2 months that USD/CAD managed to break above 1.05 in a meaningful way and with this key resistance level broken, many traders are wondering if the recent rally will turn into a new uptrend in USD/CAD or if the currency pair will fail at 1.06 once again. To address this question we look at the fundamental and technical outlook for USD/CAD.

This morning, Canada released 2 key economic reports – retail sales and consumer prices. Like many parts of the world, inflation in Canada is too low. Consumer prices dropped 0.2% in the month of October, driving the year over year rate down to a 5 month low of 0.7% from 1.1%. Excluding the declines in the cost of food and energy, consumer prices rose 0.2% but on an annualized basis CPI still slowed to 1.2% from 1.3%. Retail sales on the other hand were very strong, rising a whopping 1% in September compared to 0.1% the previous month. This would have singlehandedly reversed the rise in USD/CAD if not for the flat growth in retail sales ex autos. Excluding the largest rise in automobile sales in 4 years, consumer spending stagnated. So while confidence has reached a 2.5 year high in Canada, consumers are reluctant to spend and with low price pressures, the Bank of Canada will maintain its neutral monetary policy stance. Yesterday BoC Governor Poloz said he wanted to see inflation higher than where it is right now and this confirms they are in no rush to raise rates. Therefore rising U.S. rates should support a stronger rally in USD/CAD.

Unfortunately 1.06 is a very stiff resistance level that the currency pair has struggled with for the past 3 years due in part to the 61.8% Fibonacci retracement of the 2007 to 2008 run up. Since 2010 every attempt to break above this level flamed out. Even if USD/CAD manages to break above this level, it will resistance at 1.0650 and 1.07 but nonetheless based on the price action seen in the monthly chart, the currency pair is prime for an upside breakout that should clear 1.06.