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.

EUR/USD Clears 1.3500 as IFO Hits Fresh Highs

The EUR/USD regained the 1.3500 level in early European trade after the IFO survey of business sentiment posted its best reading in more than a year indicating that business activity in Eurozone’s largest economy remains robust. The IFO printed at 109.3 – much better than the 107.7 eyed with current conditions rising to 112.2 vs. 116 forecast while expectations increased to 106.3 versus 104 projected.

IFO economist Klaus Wohlrabe noted that easy monetary policy across the G-4 universe is helping exporter sentiment while domestic demand for capital goods remains stable. Germany continues to diverge from the rest of Europe as its economy is vastly outperforming the other member nations especially France which is teetering on the edge of recession.

This contrast in growth is sure to create conflict in the union as periphery nations will no doubt press for more monetary easing in order to stimulate growth. However, for now Germany continues to hold the line on any further policy with Mr. Draghi dismissing any talk of negative interest rates.

Such hawkishness, along with continued positive surprises out of Germany have helped to maintain a floor underneath the EUR/USD and today’s pop above the 1.3500 level indicates that currency continue to find the unit attractive. However, unless the periphery begins to see a pick up in demand the disparity between German growth and the rest of the EZ sluggishness could create major tension in the region and put a cap on the current rally.

Ultimately the clear difference in intent between the hawkish leaning Fed and the still very dovish ECB is likely to tilt the balance of buying in favor of the dollar, assuming US growth remains in track and the political warfare in Washington is kept to a minimum.

Elsewhere, USD/JPY paused to correct some of yesterday gains dropping below the 101.00 level, but found buyers underneath that figure and was trading at 101.25 by mid morning London dealing. The North American calendar is barren today, so currency traders may be looking at equity and bond markets for clues. If long term yields continue to rise USD/JPY could make a run at the key 101.50 resistance level as the day proceeds

Forex: Aussie Dollar Sinks on FOMC Minutes, RBA Intervention Risk

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The Australian and New Zealand Dollars plunged as most Asian stock exchanges slumped, pulling down the sentiment-linked currencies along the way. The MSCI Asia Pacific regional benchmark index fell 0.7 percent amid fears that the Federal Reserve may begin to scale down its stimulus efforts sooner than expected after minutes from October’s FOMC meeting printed on the hawkish side of investors’ forecasts (as we expected). The move lower was compounded as HSBC’s China Manufacturing PMI gauge revealed that factory-sector activity slowed more than economists expected in November.

The Aussie Dollar narrowly underperformed its Kiwi namesake as RBA Governor Glenn Stevens said the central bank was “open-minded” about FX market intervention. The central bank chief argued that the currency is above expect levels in the medium term and warned that although officials are still unconvinced about whether the benefits of intervention outweigh the costs, current inaction doesn’t mean the RBA will always remain on the sidelines.

The Japanese Yen fell as much as 0.8 percent against its leading counterparts. USDJPY appeared to lead the way as the spread between US and Japanese 10-year bond yields to 218.4bps in the wake of the FOMC Minutes release. That is just a hair shy of the two-year high at 221.7bps recorded in September amid expectations of an imminent “tapering” of QE3 asset purchases. Japan’s benchmark Nikkei 225 stock index closed up 1.92 percent, diverging from equity performance elsewhere in Asia and recording its strongest gain in five days. The newswires attributed the move to the weaker currency’s implications for export-geared sectors.

The Yen began to slide in early Asia, paused briefly to await the outcome of the Bank of Japan monetary policy announcement, and resumed a several hours thereafter as it became clear the status quo will remain in placefor now. The central bank opted to keep monetary policy unchanged, maintaining its annual monetary base target at ¥270 trillion. BOJ Governor Haruhiko Kuroda said it was too soon to discuss changes in strategy with the economy moving on the right track but pledged to make adjustments if necessary. Japan’s headline year-on-year CPI inflation measure hit 1.1 percent in September, the highest in over five years.

The Euro was little-changed on net in the aftermath of sharp seesaw volatility as November’s preliminary PMI data set crossed the wires. The single currency initially plunged as French PMIs registered sharply below consensus forecasts but swiftly recovered following a firm set of analogous figures out of Germany. The region-wide Composite PMI figure edged down to a three-month low. Looking past near-term volatility, that is likely to keep alive the argument in favor of further ECB accommodation and we continue to hold short EURUSD.

Fed policy speculation is set to continue in the hours ahead as the weekly set of US Jobless Claims figures hits the tape. Initial and continuing claims are both expected to print lower, feeding bets on a relatively sooner move to cut back QE and encouraging the US Dollar higher. Another spirited round of “fed-speak” is likewise on tap, with Governor Jerome Powell as well as Richmond and St. Louis Fed Presidents Jeff Lacker and Jim Bullard (respectively) due to deliver commentary.

Dollar Continues March Against the Yen and Other Top Forex News

The dollar continued its meteoric rise against the Japanese yen on Thursday, climbing to four-and-a-half month high after the Bank of Japan hinted at extending its ultra loose monetary policy in the coming months.

During the U.S. session, USD/JPY climbed 1.02% to 101.06, the highest level since July.

The dollars impressive performance against the yen came despite mixed data out of the U.S.

This mornings Department of Labor report showed that the number of people filing for initial jobless benefits fell by 21,000 last week, to a seasonally adjusted 323,000, beating expectations for a decline of 9,000.

The upbeat jobs data offset data from the Federal Reserve Bank of Philadelphia which showed  that its manufacturing index fell to 6.5 in November, from 19.8 in October. Economists had expected the index to decline to 15.0.

A separate report showed that U.S. producer price inflation declined 0.2% in October, in line with expectations.

Elsewhere, EUR/USD recovered some of yesterday’s losses, climbing 0.13% to 1.3458, after European Central Bank President Mario Draghi downplayed speculation over negative deposit rates in the eurozone, during a speech in Germany.

While, official data showed that business activity in the eurozone slowed again in November raising worries of softening growth as the bloc struggles out of recession. Markit Economics said its Eurozone Composite Purchasing Managers Index (PMI) for November – published on Thursday – fell to a three-month low of 51.5 points from 51.9 points in October.

In the U.K. the pound recovered yesterdays losses against the dollar, breaking through the key resistance level 1.6150, after data showed that public sector net borrowing (PSNB), excluding distortions such as bank bail-outs, fell to £8.08bn in October, from £10.3bn in September. GBP/USD closed the session up 0.33% at 1.6158.

Elsewhere, the Australian dollar came under heavy selling pressure after Reserve Bank of Australia Governor Glenn Stevens said the bank believed that intervening in the currency market to lower the currency’s value could be effective in the right circumstances.

The news came after yesterdays report from the IMF which said the Aussie could be overvalued by as much as 10%. AUD/USD slumped 1.22% to 0.9221 during the session.

The greenback was also broadly stronger against the New Zealand and Canadian dollars, with, NZD/USD losing 0.94% to trade at 0.8194 and USD/CAD rising 0.73% to 1.0524. Largely on the back of soft Chinese data.

Top Trade Idea For 2013 – EUR/USD

It may feel like a fade but in reality it’s more of a trend follow and that’s the EUR/USD short sell based on the fresh downtrend on the daily time frame.

Using the five-minute as the set up chart could arguably be micromanaging but there are times that this short-term time frame is perfect. Examples would be specifically entry and exit areas. In this case it’s an entry and one that is triggering on the bullish momentum that we’re seeing the fiber.

I am most interested in the on-going resistance of the daily 34 period EMA low which is currently at 1.3468. This is the entry for traders looking to sell into an exhaustion area (between the 1.3468 level and the 1.3480 minor psychological level).

Watching the five-minute chart gives me an up-close-and-personal view of intraday momentum and the way in which the EUR/USD in trading between the psychological levels. I am also fine with an alternative entry or using this alternative entry as a second short sell and that’s the 1.3450 major psychological level.

Either area valid but the downtrend is new and therefore transitional which means we must be ready for volatility; that doesn’t mean we have to sit through it though. I will use a cheated in stop loss since my “tolerance” for this trade to follow-through to the downside will be low.

The intraday uptrend line and the 1.3450 level are in close proximity and this entry would be one based on bearish momentum rather than the 1.3480 exhaustion-based entry.

The stop loss I will use relies on the bears “owning” the 1.35 handle and I will use a 1.3510 “cheated in” stop loss with a 1.3405 initial profit target. This does make the 1.3450 entry upside-down on my risk/reward but I will be using both levels to enter.