Friday 20 December 2013

Crude Oil Outlook

CRUDE OIL: Consolidating Below Key Overhead Resistance.

CRUDE OIL: The outlook for Crude Oil still remains to the downside except it takes out the 98.74 level. While that level continues to hold as resistance, the risk is for the commodity to retarget the 96.21 level.
Further down, support stands at the 95.00 level with a breach of here leaving the threat of a return to the 94.00 level on the cards. Conversely, resistance resides at the 98.74 level where a violation will aim at the 100.00 level.

Further out, resistance comes in at the 101.50 level with a cut through here turning attention to the 102.00 level. All in all, Crude Oil may be attempting to recover higher but still retains its broader downside bias in the medium term.


crude oil

Markets unwinding after taper day and the Fed’s promise to continue forward guidance


The long awaited “taper” has finally arrived, with equity markets taking the announcement in stride and treating the relatively more hawkish statement from the FOMC as an early Christmas present.  The feeling that the American economy was on strong enough ground the Fed could reduce their monthly asset purchases by $10bn sent stocks to record highs, with the S&P rallying from earlier lows to close up by 1.7% on the day.  In addition to the beginning of the “great unwind”, the Fed also made sure to reinforce that tapering is not tightening (despite 10yr treasury yields in the secondary market leaking higher post-announcement), and enhanced their forward guidance by suggesting that the exceptionally low level of interest rates would remain in place “well past the time that the unemployment rate declines below 6.5%.”

The amendment to the previous communication around forward guidance and the 6.5% unemployment threshold gave markets slightly more confidence that the first interest rate increase from the Fed is still a long ways off, especially if inflation remains subdued and below the FOMC’s long-run objective; 12 of the 17 Fed officials now expect rates to be at or below 1% at the end of 2015.  While yesterday’s decision to lop off $10bln of monthly asset purchases was slightly ahead of when we forecast the initial taper to come, the choice to pair the reduction in balance sheet growth with enhanced forward guidance was in-line with our expectations, and not necessarily outside the realm of prospects for what the Fed was capable of administering.

Bernanke’s press conference shed a little more light surrounding the future path of monetary policy, and while he reiterated that the pace of asset purchases were not on a preset course, should the incoming data continue to show improvement like it has over the previous few months, the pace of reduction (along with the breakdown of $5bn from treasuries and $5bn from MBS) is likely to continue at subsequent meetings in 2014.  In short, the Fed will continue to remain data dependent, with incremental gains in productivity and the labour market leading to the gradual unwind of additional monetary stimulus.  Bernanke also made sure to reinforce the point that Yellen was instrumental in the shaping of FOMC policy during the course of the meeting, signaling to markets there would be continuity from the Fed when Yellen takes over for Bernanke in January.

The reaction across asset markets was initially one of confusion, as stocks, treasuries, commodities, and currencies all whipsawed back and forth as traders and investors digested the news.  After the dust settled, the outcome was very much USD positive, with high-beta commodity currencies like the AUD and CAD feeling the brunt of the sting.  The Loonie was squeezed lower as the USD bid-tone sent USDCAD north of 1.07, while AUDUSD dropped into the low-0.88s, and USDJPY tested the waters above 104.  The small reduction of liquidity from the Fed sent the DXY ramping into the mid-80s, while treasury markets were less impressed, and after the initial knee-jerk reaction the US 10yr grinded higher to end at 2.897%.  The outcome of yesterday’s meeting reinforces our thesis that the USD is poised to enter 2014 on solid ground, with the eventual unwind of additional stimulus underpinning the big dollar as interest rates in the secondary market gradually increase.

Equities traded in positive territory during the overnight session, clinging to the back of gains seen on Wall Street with the Nikkei positing an increase of 1.74%.  While the Bank of Japan isn’t expected to make any major policy amendments at their meeting tonight, the negative trade balance data from earlier in the week will likely continue to put upward pressure on USDJPY as traders assess the growing divergence between monetary policy regimes in the US and Japan.

European bourses are seeing a similar shade of green on traders’ screens, with the majors playing catch-up to the Fed’s non-aggressive taper decision as the Dax, FTSE, and Stoxx are up by 1.37%, 1.14%, and 1.49% respectively.  After the initial spike that saw Cable trade into the high-1.64s, GBPUSD has retraced those earlier gains, backing away from the 1.64 handle as retails sales in the UK increased by less than expected for the month of November.  The y/o/y reading missed forecasts coming in with only a 2.0% increase, however this was up from the 1.8% that had been registered in October, as clothing sales were spurred by a colder than anticipated month.

Heading into the North American open, futures are displaying a slight weight to the tape, seeing a little bit of an easing from yesterday’s aggressive rally.  Unemployment Claims, Existing Home Sales, and the Philly Fed Manufacturing Index are all on tap for later in the session, and while they will not have the same market-moving power as the FOMC yesterday, a positive economic docket will continue to put upward pressure on the USD as it reinforces the unwind of QE.   The Loonie struggles continue this morning, with little interest from market participants to increase exposure to the commodity-linked currency considering FOMC decision.

Copper futures are down 0.74%  Gold encroaches on the $1,200/ounce level, and WTI remains flat just south of $98/barrel, so there is little working in the CAD’s favour in terms of its traditional drivers.

Turning our attention to the beleaguered Loonie, domestic inflation numbers are due out tomorrow and could give the CAD a slight reprieve, or escalate the sell-off and send USDCAD to new highs depending on the strength of the release.  Expectations are that we see the core reading remained pinned at an increase of 1.2% when compared to the last twelve months, while the headline reading moves up from 0.7% to 1.0% over the same measurement period.  With the Bank of Canada taking a keen interest on inflation remaining persistently below target, consumer prices will have more of an influence on price action in the Loonie moving forward.  A warmer than expected reading would provide some relief to the recent pressure the Loonie has succumb to, while a print that misses the median analyst forecast will likely accelerate the upward momentum in USDCAD.  With price action stretching the upward Bollinger Bands, further weakness in the Loonie would see the pair test 1.0750 at the top of the trend channel drawn from the September rally, which if broken, would open up room for the pair to make a run at the May 2010 high of 1.0850.

US Dollar Index ready to rally?

US Dollar Index: With the Index bullish and threatening further upside, more strength is expected.
However, it will have to break and hold above its declining trendline currently at the 80.61 level to trigger further strength. This if seen will extend recovery higher towards the 80.98 level where a violation will aim at the 81.48 level.

A push through this level will set the stage for a run at the 82.00 level and possibly higher towards the 82.50 level. Its daily RSI is bullish and pointing higher supporting this view.

Conversely, as long as it continues to trade below its declining trendline, expect a push back lower. Support lies at the 80.50 level where a violation will aim at the 80.00 level.

Further down, support lies at the 79.75 level with a turn below here paving the way for a run at the 79.00 level. All in all, the Index continues to face upside threats in the short term.


US Dolla Index

Thursday 12 December 2013

Idea of the day....


Idea of the Day
Markets were skittish on Wednesday, with various rumours doing the rounds and causing more nervousness regarding the prospect of Fed tapering next week. The Aussie took most of the pain, with the Swissie and yen holding their ground. EURCHF is now at levels last seen in the early part of May and having gained nearly 3% so far this month on the dollar. The price action encompasses our broader view for next year, namely that Fed tapering will be bullish for the dollar, but not overwhelmingly so. Near-term, the Aussie continues to look the most vulnerable, simply because their central banks wants to see a weaker currency and there is scope for the RBA to lower rates further in 2014.
20131212 - Daily Table_0
Data/Event Risks
USD: Retail sales the main focus, with the market expecting a modest rise of 0.2% in the ex-autos measure (same as October). Weekly claims are seen moving higher from the dip below 300k seen last week. The dollar remains nervous so the data could do have an outsized impact, especially if away from expectations.
Latest FX News
NZD: No surprise to see rates steady after the central bank meeting yesterday, but expectations of a move early next year increased, the governor underlining that the RBNZ would “increase the cash rate as needed”. The kiwi bounced modestly, with an overnight high of 0.8292. AUDNZD moving lower to 1.0891, continuing the bearish trend that has been in place from March.
EUR: French CPI data in line with expectations early on today, rising at 0.7%. More inflation is seen today. The euro at 1.38 and this is currently the 8th consecutive daily gain for EURUSD. Note that upcoming stress tests continue to offer support, banks both repaying loans to the ECB and repatriating funds from overseas, which creates the risk of a new year hangover for the euro.
AUD: Employment data was better than expected overnight, with a 21k rise in November, expected was 10k. The unemployment rate held steady at 5.8%. The Aussie was initially firmer, up to the 0.9080 level, but fell back to a low of 0.9011 thereafter, underlining the tendency for rallies to be sold.

USD/CHF bearish

USD/CHF: With USDCHF slightly holding below the 0.8889 level, further weakness is envisaged possibly towards the 0.8800 level. Bulls may come in here and turn it higher but if that level is broken expect further decline to occur towards the 0.8750 level. 

Further down, support lies at the 0.8700 level. Its daily RSI is bearish and pointing lower supporting this view. On the upside, resistance resides at the 0.8950 level followed by the 0.9000 level and then the 0.9100 level.

Further down, support lies at the 0.9190 level followed by the 0.9249 level. A breach of here will turn attention to the 0.9450 level where a break will turn focus to the 0.9542 level. All in all, the pair remains biased to the downside.


USDCHF

Aud/Usd update

Australian Employment Change, which is released monthly, provides a snapshot of the health of the Australian labor market. A reading which is higher than the market forecast is bullish for the Australian dollar.
Here are the details and 5 possible outcomes for AUD/USD.
Published on Thursday at 00:30 GMT.
Indicator Background
Job creation is one of the most important leading indicators of overall economic activity. Thus, the release of Employment Change is a market-mover which can affect the movement of AUD/USD.
In October, the indicator posted a modest gain of 1.1 thousand, well below the estimate of 10.3 thousand. The markets are expecting a strong turnaround for November, with the estimate unchanged at 10.3 thousand. Will the indicator match or beat this rosy prediction?
The RBA did not reduce interest rates last week, but it continues to loudly shout that it wants to see a weaker Australian dollar. This is weighing on the Aussie, which has been struggling against its US cousin. Sharp US employment numbers last week, led by Non-Farm Payrolls has increased speculation of a December taper, which could help the US dollar, as a QE scale down is a US dollar-positive event. So, the overall sentiment is bearish on AUD/USD towards this release.
Technical levels from top to bottom: 0.9283, 0.9180, 0.0947, 0.90, 0.8893 and 0.8747.
5 Scenarios
  1. Within expectations: 10.0K to 13.0K: In this scenario, AUD/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
  2. Above expectations: 13.1K to 17.0K: A strong reading could push the pair above one resistance level.
  3. Well above expectations: Above 17.0K: A sharp rise in employment numbers could propel AUD/USD upwards, and two or more resistance lines could be broken.
  4. Below expectations: 6.0K to 9.9K: A lower than expected reading could pull the pair downwards, with one support level at risk.
  5. Well below expectations: Below 6.0K: A very poor reading will likely hurt confidence in the Australian economy and AUD/USD could break two or more support levels.

Eur/Usd Update


EUR/USD continues its upward movement, continuing the trend which we’ve seen all week. The pair is trading in the mid-1.37 range in Wednesday’s European session. In economic news, it’s another quiet day, with no major releases. French Final Non-Farm Payrolls and German Final CPI both matched their estimates. In the US, today’s highlight is Crude Oil Inventories.
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.
EUR/USD Technical
  • EUR/USD was uneventful in the Asian session, trading close to 1.3760. The pair is unchanged in the European session.
  • Current range: 1.3710 to 1.3800.
Further levels in both directions:  EUR USD Daily Forecast Dec. 11th
  • Below: 1.3710, 1.3675, 1.3615, 1.3525, 1.3440, 1.34, 1.3320, 1.3240, 1.3175 and 1.31.
  • Above: 1.3800, 1.3870, 1.3940 and 1.4036.
  • 1.3710 continues to provide support. 1.3675 is next.
  • The round number of 1.3800 is the next line of resistance. 1.3870 follows.
EUR/USD Fundamentals
  • 6:30 French Final Non-Farm Payrolls. Exp. -0.1%, Actual -0.1%.
  • 7:00 German Final CPI. Exp. 0.2%, Actual 0.2%.
  • 15:00 US Treasury Secretary Jack Lew Speaks.
  • 15:30 US Crude Oil Inventories. Exp. -2.2M.
  • 18:01 US 10-year Bond Auction.
  • 19:00 US Federal Budget Balance. Exp. -142.6B.
*All times are GMT
For more events and lines, see the Euro to dollar forecast.
EUR/USD Sentiment
  • European finance minister discuss banking union: EU finance ministers met in Brussels on Tuesday and high on the agenda was a proposal for a European banking union. The aim is to relieve debt-ridden countries from the burden of rescuing failing banks in their countries. Instead, the banks would tap a Eurozone rescue fund, the Single Resolution Mechanism. However, no agreement has been reached on the SRM, and the finance ministers are likely to meet again next week to try and hammer out details of a banking union. ECB head Mario Draghi is a firm supporter of a banking union and has urged national governments to move forward with the plan.
  • German data disappoints:  The week started off on a sour note, as German releases fell below market expectations on Monday. Germany’s trade surplus shrank to 16.8 billion euros, down from 18.8 billion in October. Industrial Production declined by 1.2%, the third decline in the past four readings. The estimate stood at 0.8%. German CPI gained 0.2%, which matched the estimate. Although just a modest gain, this was the best figure we’ve seen in the past four months. If German numbers don’t improve, we’re unlikely to see much growth out of the struggling Eurozone economy.
  • Will Fed taper in December? Last week’s employment numbers were super, as Unemployment Claims, Non-Farm Payrolls and the Unemployment Rate all impressed. The Fed has said that a stronger employment picture is a prerequisite to tapering, and last week’s numbers certainly increase the possibility of the Fed taking action at its December policy meeting. Other factors also favor a December taper. Currently, the Fed is purchasing $85 billion in assets every month, and a Fed taper will likely boost the US dollar against the major currencies.
  • Negotiators reach budget agreement:  With memories of the October government shutdown still fresh on Capitol Hill, Congressional negotiators have reached a budget deal which Congress will have to pass. The agreement will remove the risk of a government shutdown and reduce the deficit by a modest $23 billion. Democrats and Republicans both had criticism of the proposal, but there is general agreement in Washington that the compromise reached is a positive step which removes some of the economic uncertainty we’ve seen in recent months. Con

Sunday 8 December 2013

Markets have not looked this good for a LONG TIME...

So, the dollar failed to rally despite outstandingly positive GDP and employment figures, and the EUR/USD found buyers on dips, pointing to close this first week of December at fresh 5 weeks highs. What happened to “taper trading”? An educated guess will suggest numbers had not been enough to change what market players had already priced in that is, no taper at least until March 2014. But upcoming FED meeting on December 18th, will be the last of Bernanke as chairman. Will he dare to kick start tapering anyway, so he can leave with the feeling of mission accomplished? 
 
Looking to sell at 13830 a double top.

Market consensus seems to disagree with such theory, and rather focus in upcoming head Yellen dovish preferences. But can the EU support a strong EUR? ECB latest decision to stay on hold followed a rate cut to record lows of 0.25%. The EUR/USD tested 1.3290 afterwards, and it has been a one way ride ever since.  And while European recovery is still on doubt, the EUR continues to surge regardless.

The daily chart shows indicators heading higher in positive territory, 20 SMA offering dynamic support for most of these last few days and heading north below current price, and overall, price accelerating above 1.3625, 61.8% Fibonacci retracement of the latest bearish run. So technically bulls prevail now aligned around mentioned Fibonacci support, with the 1.3700 area as immediate resistance: a break above it should lead to a retest of the 1.3831 high posted this year.

On the other hand, bears are quite far from taking control, as dips are still seen as buying opportunities as said before, with levels to watch at 1.3625, 1.3550 and the 1.3490 price zone, 38.2% retracement of the same rally.


View Live Chart for EUR/USD

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The following are on my watchlist as well

USD/CHF BUYdouble bottom at 8892

EURGBP, sell very soon, again

USD/JPY A break above 10382 is then heading for 110.50

Many other Yens will follow, eurjpy, cad/jpy, gbp/jpy etc

See my latest video update here : MARKET UPDATE HERE