0:10 Mixed markets as yesterday’s moves are pared
0:53 Uncertainty over QE drives current volatility
1:33 BoJ minutes creates further uncertainty
Forex research: Global markets daily
[B]Mixed markets complete week of uncertainty as volatility reigns supreme[/B]
Today’s US opening call provides an update on:
[ul]
[li]European markets rally after volatile week, yet no end in sight for current turmoil
[/li][li]BoJ minutes indicate uncertainty due to unexpected monetary side effects
[/li][li]UoM consumer sentiment expected to show improving picture
[/li][/ul]
A continued picture of uncertainty within the markets looks set to be completed with global indices rallying to recover some of the losses seen this week. In particular, the European stocks has seen an increasingly close correlation with Asian markets, with the US taking somewhat of an alternate path on a number of occasions (seen by the expected negative open in US indices today). The linkages between markets can be associated with a number of reasons, not least the growing importance of the Asian growth story as a key driver of both economic recovery and investor confidence.
The ability of markets to rally globally has been justified in part owing to the creation of excess liquidity within the global marketplace, coupled with the search for yields owing to long term low bond yields. However, this argument is in part nullified by the lack of volume seen throughout this rally, bringing the likeliness for volatility higher as the activity of each trader is smoothed to a lesser extent. What is evidently apparent is the increasing importance of expectations within the markets, heightened owing to the ever increasing quantitative easing seen globally.
The ability for markets to stabilise once more is highly dependent upon expectations. The ability for markets to gain a clear picture of whether their expectations should be bullish or bearish going forward provides a fundamental argument to a technical story. Subsequently where traders see a shift away from ‘secure’ expectations of growth driven by unlimited QE, towards one in which the future is less certain, it was always likely to bring about a negative response from the markets. Until the markets return the a scenario where expectations are more certain and stable, the current volatility is likely to become a continued characteristic of markets.
The certainty surrounding the Japanese economy suffered yet another blow over night, with the release of the BoJ minutes from their May 21-22 meeting. The one resounding aspect seen throughout the minutes what one of ill prepared members whom were dealing with unexpected consequences from previous policies. The ability of BoJ members to avoid the extreme stimulus measures endorsed by Shinzo Abe and Aso Taro was doubtful given that both leaders got into power on that exact ticket. However, the ability to foresee the side-effects of their actions is now coming into question after the yields associated with government debt spiked higher throughout April and May.
Most notable of the suggestions emenating from members of the BoJ, was the realisation that given the unlimited nature of current stimulus, this appears to be the core diver of recent volatility Subsequently, it is perhaps advisable to place limits upon QE as a means to stabilise the JGB market. It is this message of uncertainty surrounding the provision of monetary loosening going forward which has the ability to turn the markets lower still over the coming period.
The reaction seen from the markets was somewhat muted overall, with the Nikkei managing to shrug off the comments and climb almost 2% over the day, despite being over 3% up in earlier trading. However, this could be in some way attributed to the fact that since this meeting, the JGB market has become somewhat less volatile, returning to lower and more desirable levels.
UoM consumer sentiment figures are due out later today, with the market expectation pointing towards a moderate rise from 84.5 to 84.9 for the month of June. The importance of consumer sentiment is undeniable and has strong linkages with the retail sales growth seen yesterday. Seen together, both figures portray two sides to the same coin. Yesterday’s strong retail sales figure provides an picture of economic health within consumers, but also one of strong conviction towards future growth and expectations. Similarly, a strong consumer sentiment figure will go some way to explain why retail sales have been improving and provides expectations of further improvement in the sales figure for June.
US markets are expected to open lower, with the S&P500 -2 and DJIA -10 points.
[B]Geo-political developments takes centre stage for G8 summit[/B]
Today’s UK opening call provides an update on:
• G8 meeting commences with focus upon global economy
• Iranian election brings hope, yet Syrian anxiety dominates energy market
• US manufacturing index expected to show improvement
A fairly mixed start to the week today, with markets largely focusing upon the ability of key global indices to recover losses seen over the past week. Overnight trade within Japan has seen an almost 300 point gain in the Nikkei 225, driving expectations of a strong European session higher. However, given the current volatility and unpredictive nature of the markets, the European futures currently point to a mixed bag for indices.
Today marks the commencement of a two-day meeting of the 8 most industrialised nations in the form of the G8 summit. Coming at a time of great volatility and increasing uncertainty, there is likely to be a significant focus upon the global economic outlook. From a Japanese perspective, these talks have been productive in garnering support for the ongoing monetary measures being employed. However, given the apparent deterioration in the markets over the past month, it is now as likely that discussions regarding Japanese and US monetary easing measures become more dovish by nature. More generally, the recent market turmoil will certainly increase the emphasis upon the role of central banks in smoothing volatility and guiding the global economy into more stable waters.
The meeting, taking in place in Northern Ireland, is a chance for leaders to highlight key topics of international precedence. However, for each respective nation, there is an element of showmanship for their domestic audience to ensure the perception is that key strategic issues are highlighted. In the UK, there has been much made of the crackdown of tax havens and tax avoidance. The existence of low tax areas being utilised by multinational corporations as strategic headquarters has brought about an increasing feeling that the biggest companies are not paying their fair share. The utilisation of transfer pricing creates a situation whereby services performed within one nation is subsequently resulting in a disproportionately smaller amount of tax being paid. Given the UK’s position as a key global center for business, the ability to fully appropriate the relevant tax for multinational corporations will bring about a significant boost to the economy.
Another key topic on the agenda of the G8 comes in the form of an increasingly complex and global conflict in Syria. US declaration of involvement brought about the highest crude prices in approximately nine months on Friday. Russian insistence upon continued backing of the Assad regime has turned a domestic struggle for regime into an international proxy war between the west (US & Europe) and the east (Russia & Iran). The subsequent geopolitical risk for the region has served to increase market anxiety higher, as seen in recent energy prices.
However, one key development in the region came over the weekend, as the Iranian presidential election came to a conclusion with the overwhelming victory for perceived reformist Hassan Rouhani. The importance of Rouhani’s victory centers around his willingness to provide the country with a shift in emphasis towards a more ‘normalised’ existence without much of the current embargoes and sanctions that cripple the outcast nation. In order to achieve this, Rouhani would promote increased engagement with Western powers. However, Israel PM Benjamin Netenyahu has since gone on record to warn against a loosening of current international pressure given the fact that it is the ‘supreme leader’ Ali Khamenei who dictates policy with regards to Iranian nuclear policies. Subsequently, there is the possibility that Iran may witness an increasingly public power struggle between these two key actors.
In the markets, we are looking forward towards the release of the US empire state manufacturing index figure, due out at 1.30pm GMT. Playing second fiddle to the Philly Fed manufacturing index, this figure provides an outlook for 200 manufacturers in New York state. The market expectation is for a push back into a positive outlook, with the May figure of -1.4 expected to rise to 0.4. However, this has increasingly disappointed forecasters over recent months and subsequently there is a high likeliness that we could see a consecutive negative reading.
European markets are expected to open mixed today, with the FTSE100 up 10 points, while the CAC is expected to open -6 points and the DAX approximately flat at +0.2 points.
[B]EURUSD[/B]
Friday saw a substantial push to the downside, back through support at 1.334, signaling the potential for a new bearish phasing to thing trend. However, in much the same way as Thursday, much of these losses were made up in the US session bringing a slightly improved picture for the pair. The Friday close exactly on the 61.8 Fibonacci highlights it as key support and provided an unclear picture of where this pair in expected to go today. This morning has seen a move below support, currently trading around 1.332, bringing about a possibility of further downside momentum over the coming week. The stochastic and CCI indicators both point to an overbought and thus some form of consolidation would make sense. However, given the experiences of Thursday and Friday, the current candle must close below support to increase the view that there is further downside to come. Such a move would bring a target level of around 1.311-1.305. This encompasses the 100 and 200 moving averages, along with the 38.2 retracement of the February -April downtrend and 50.0 retracement of the recent May – June uptrend.
The weekly confirms this downward bias with both stochastic and CCI indicators pointing to an overbought market. However, this also provides a long term target of 1.38 to establish a higher high to this 12 month trend.
[B]GBPUSD[/B]
A similar story in cable, where Friday’s inability to close below support brings about a key day of trading today in determining the future movements of this pair. Current price action remains around support and a close above this level would be bullish for the pair. However, given indicators point to an overbought market, there is a high likeliness that the price could fall back towards 1.53 levels.
Taking a look at the weekly chart, there is clear resistance at 1.57 given the inability to close above it on Friday. However, today we will be looking to see if this can subsequently turn into support or if we are due a correction to the downside. Near upside target comes at the extension of 1.579, followed by a longer term target of 1.624.
[B]USDJPY[/B]
A fairly torrid time for the dollar yen over the past three weeks. losing approximately 10% of value over that period. Clear support has been found at the 38.2 Fibonacci retracement around 93.6, sparking some buying this morning. The ability of the pair to close above the 95.0 handle will be crucial given this represents a previous low for the pair. The stochastic and CCI indicators point to an oversold market, thus increasingly the likeliness of a move back to the upside. However, as has been the case in EURUSD and GBPUSD, it is the potential resurgence of the US dollar which will be key to whether all three can regain some of the ground of weeks gone by. Upside target would come around 97.4, representing the 23.6 retracement level…
James Hughes talks about the run up to Wedneday’s key FOMC Meeting and also looks ahead to CPI numbers out of the UK tomorrow morning.
Forex research: Global markets daily
[B]Markets rise as confidence creeps back in[/B]
Today’s US opening call provides an update on:
[ul]
[li]Markets receive boost as signs of confidence arise
[/li][li]G8 summit brings Syria to the fore after US commitment
[/li][li]UoM consumer sentiment forecasts point to improvement
[/li][/ul]
The US is expected to take guidance from European markets today, driven primarily by increased confidence that the recent downturn in global indices may have subsided somewhat. The Japanese Nikkei 225 managed to post an overnight gain of over 2.7%, bringing the index back above 13,000. Subsequently, this marks a clear plateau in the deterioration of the price action and brings about an increasingly hopeful sentiment with regards to a return to positive momentum. The correlation between Asian and European indices has been unquestionably more relevant over the recent period and this was proven again this morning, with Europe following suit despite expectations of a mixed open of the futures markets. The recent shun of traditional risk trends has seen the risk appetite fall, as personified by the deterioration of equity markets, yet a simultaneous fall in the US dollar; traditionally seen as a safe haven currency. The perceived widespread devaluation of the dollar through monetary stimulus could go some way to explaining this and given the IMF decision to instill CAD and AUD as alternate reserve currencies, there is clearly increased doubt as to the inherent strength in the greenback.
Today marks the commencement of the G8 summit in Northern Ireland which brings together leaders from the 8 most industrialised nations in the world. The overarching themes are likely to be focused upon the ongoing conflict in Syria, along with a heightened degree of market centric discussions given the recent sharp pullback in global indices. The conflict in Syria has become increasingly global after US involvement was announced on Friday by Barack Obama who committed to arming rebel fighters against the Assad regime. However, in a move which has resounding similarities to Afghanistan in the eighties, this move remains dangerous for the US, who cannot say with certainty whose hands the weapons will fall into. Obama’s announcement has turned this domestic conflict into a proxy East vs West war, where Iranian and Libyan Hezbollah fighters combined with Russian anti-air defences come up against an increasingly western backed rebel contingent in Syria. This has pushed the price of Brent crude oil to the highest level in over nine months, in association with the fact that this conflict is taking a more and more international element. Syria is not a major oil producing country, yet the potential for spillages into neighbouring countries has spooked the markets somewhat.
The recent volatility within global markets has brought an increased focus upon the role of central banks as a key determinant of ongoing economic progression. Subsequently, the G8 is expected to pay particular attention to the role played by central banks in ensuring stability within the markets going forward. The increased discussions of tapering in the US, along with indecision regarding future policy at the BoJ has spurred markets into an increasingly worrying spiral. Subsequently, leaders will discuss how the role of central banks can be utilised in a way which reduces the likeliness of another market crash.
Later today, we are looking forward to the release of the US empire state manufacturing index figure. Second to the Philly Fed manufacturing index, this figure is focused upon the New York state and thus is provides an alternate indication of the health of the sector currently. The market expectation is for a move into a positive figure, with a rise from -1.4 to 0.4 expected. However, given the fact that this figure has increasingly disappointed forecasters recently there is a high likeliness that we could see a further figure in negative territory.
US markets are expected to follow the lead of European markets, opening higher with the S&P500 +14 points and DJIA +126 points.
[B]US investors optimistic ahead of Fed decision[/B]
Today’s UK opening call provides an update on:
• US investors optimistic ahead of Fed meeting;
• RBA meeting minutes hint at further rate cut;
• Putin continues to defend Assad at G8 summit;
• Focus on UK inflation data this morning.
Investors in the US could be building themselves up for disappointment ahead of the two day meeting of the Federal Reserve, after the Dow recorded its fifth consecutive day of triple digit gains.
This optimism doesn’t appear to be shared elsewhere, with stocks in Asia trading slightly lower over night and UK indices expected to open slightly in the red. Instead this represents more of a cautious tone among many investors, after Bernanke last month hinted that the Fed could begin tapering its asset purchases as early as this summer.
While the threat of early Fed tapering is a threat, I don’t think it’s likely in the coming months, given that the recovery in the US remains fragile, despite the improvement in the employment data earlier this month. Instead, I still think we’re looking at the end of the year, which is why US investors appear to be buying on the expectation of more dovish comments from Bernanke tomorrow, and no change in monetary policy from the Fed. That said, this is a very risky tactic.
The minutes from the Reserve Bank of Australia meeting earlier this month failed to provide a boost to Australian equities over night, despite hinting at another rate cut in the coming months. We did see further weakness in the Aussie dollar, although the reaction was relatively minor under the circumstances.
The G8 summit in Northern Ireland will resume on Tuesday, although very little is expected from the meeting, especially if yesterday is anything to go by. Syria appears to have been the main talking point on day one of the meeting, although no real progress was made, with Vladimir Putin refusing to back down on his defence of President Assad and the other nations continuing to support the opposition. Peace talks were discussed, however these are unlikely in the near future.
The focus today is likely to switch to the global economy, where we may see a little more progress. Trade, taxation and transparency are going to be the main topics up for discussion, although no significant progress is expected on either of these topics, so any market reaction from the G8 summit is likely to be minimal.
We should see a little more focus on the economic calendar on Tuesday, starting with the inflation data due out of the UK this morning. The CPI figure is expected to rise to 2.6% in May, from 2.4% in April, leaving Mark Carney little room to manoeuvre at his first meeting as Bank of England Governor next month. That said, regardless of the figure we see today, I don’t think any form of quantitative easing is likely at the meeting next month, at best I think all we can expect is some form of forward guidance on rates.
We also have the ZEW economic sentiment figures for both Germany and the eurozone this morning, both of which are expected to improve slightly in June. Mario Draghi’s speech at the Bank of Israel will also be watched closely before the markets open in Europe, although I will be surprised if he drops any major hints in respect to future ECB action.
Finally, we have the US CPI this afternoon, ahead of the Fed rate decision tomorrow. This is unlikely to have much of an impact on the markets today, unless we see a significant spike in the figure, as it has remained well below the Fed’s target for a number of months now.
Ahead of the open we expect to see the FTSE down 4 points, the CAC down 11 points and the DAX down 21 points.
[B]EURUSD[/B]
This pair has reached a key level over the last week around 1.3340, the 61.8% retracement of the move from this year’s highs to lows. A break above here would suggest that the pair has broken out of the recent downtrend, which dates back to the start of the year, which could prompt a move back towards this year’s highs around 1.3710. However, if it continues to find resistance around this level, it would suggest that the recent strength in the euro is merely a retracement of this year’s downtrend, prompting a move back towards 1.32 in the short term. The oscillators on the daily chart support some short term weakness, with the RSI and stochastic having both broken below overbought territory.
[B]GBPUSD[/B]
Sterling is trading lower again this morning, after finding resistance once again from the ascending trend line, dating back to 12 March lows. This trend line previously acted as a key level of support so it’s no surprise to see it now acting as resistance. At a glance, the pair looks quite bullish at the moment, having recorded higher highs and higher lows over the last few weeks, however it has reached some key resistance levels which may prompt a continuation of the downtrend dating back to the start of the year. The first is the 200-day SMA, which the pair initially broke above last week, however it is trading back below here early in the European session. If the pair closes above here, the next test will come around 1.5788, where the ascending trend line crosses the 61.8 fib level. A break above here would be the clearest hint yet that the pair has entered a new uptrend.
[B]USDJPY[/B]
The dollar is trading higher against the yen this morning for a second consecutive day. The pair has made significant losses recently, wiping out most of the gains which came following the Bank of Japans decision to commit to huge asset purchases last year. The pair has found resistance this morning though around 95.0, a previous level of support and resistance. A failure to break above here could prompt further losses in pair, with the next target being last weeks’ lows around 93.78. However, if we do see it break above 95.0, it should find further resistance around 95.77, 96.70 and 97.0…
0:10 Markets calm in anticipation of Bernanke
0:39 RBA minutes show potential for further AUD depreciation
1:28 Strong European ZEW figures pave way for PMIs
2:07 UK CPI rise disappoints markets
3:22 G8 summit set to focus upon markets
Forex research: Global markets daily
[B]Investors risk averse ahead of Bernanke press conference[/B]
Today’s UK opening call provides an update on:
• US equity investors have high hopes ahead of the Fed press conference later;
• Nikkei benefits from weaker yen to trade almost 1.5% higher over night;
• Bernanke expected to ease concerns over near term tapering;
• Minimal reaction to BoE minutes expected.
European equity indices are expected to open slightly lower this morning, as uncertainty surrounding Ben Bernanke’s press conference later continues to weigh on risk appetite in Europe and Asia, in particular.
The same cannot be said for the US, where the Dow once again recorded triple digit gains, while the S&P and the Nasdaq closed almost 1% higher. We’re definitely seeing a case here of investors in the US buying on expectations that the Fed will maintain its $85 billion per month of asset purchases and Ben Bernanke will ease concerns over tapering in the near term.
The optimism is clearly not shared in Europe and Asia, where there has been a lot more caution among equity traders over the last couple of days. Only the FTSE yesterday recorded noteworthy gains in the European session, while over night most Asian indices traded slightly lower, except the Nikkei 225, which benefitted from the slightly weaker yen to trade almost 1.5% higher.
The reaction to both the Fed’s monetary policy decision and Bernanke’s press conference now is going to be interesting. No change in policy and an attempt by Bernanke to ease concerns about near term tapering are clearly priced into the markets, which means unless the Fed Chairman does something completely unexpected, like hints at no tapering until the end of the year, or into next, we’ll probably see a sell-off in US equities before and during the press conference. That said, this is a Bernanke press conference so there’ll probably be huge swings during both the statement, and to a larger extent, the Q&A session that follows.
With so much riding on the Federal Reserve later, and economic data in Europe being on the thin side, we could see traders sitting on the sidelines a little during the European session on Wednesday. Data out of the eurozone is few and far between, with the German Bund auction probably the most noteworthy event this morning.
In the UK, we have the release of the Bank of England minutes from earlier this month. I’ll be very surprised if we see any reaction whatsoever to these minutes in the markets this morning, given that the voting hasn’t changed in months, and it was also the final meeting before Mark Carney replaces Sir Mervyn King as Governor.
A lot could therefore change at the next meeting, and probably will, as Carney bring a fresh approach to the BoE. That said, if any policy makers who previously voted against more QE surprisingly voted in favour, which is extremely unlikely, it could weigh on the pound sterling as it would only increase the chances of some form of stimulus at Carney’s first meeting in July.
Ahead of the open we expect to see the FTSE down 3 points, the CAC down 4 points and the DAX flat.
[B]Fed press conference takes centre stage on Wednesday[/B]
Today’s US opening call provides an update on:
[ul]
[li]Cautious tone in the markets ahead of Fed press conference;
[/li][li]Bernanke expected to ease concerns over tapering in the coming months;
[/li][li]No surprises in BoE minutes, voting remains at 6-3 against further QE.
[/li][/ul]
Attention is firmly on the Fed’s monetary policy decision and press conference later, with investors clearly concerned that any hints at tapering in the coming months could mark the end of the rally that has seen equity indices reach all time highs this year.
The reaction in the equity markets over the past month or so, since Ben Bernanke suggested that tapering could begin in the next few months, has clearly highlighted that the Fed’s QE3 program is having a much greater impact on the markets than some would like to admit. If Bernanke hints at tapering in the coming months again today, we could see further selling in the weeks and months ahead.
This is not something that appears to be concerning US investors, with equity indices there recorded solid gains in the first two trading sessions of the week. With investors in the US clearly pricing in a dovish Bernanke press conference, the stage could be set for some selling later in the session. Even if Bernanke does ease concerns over the potential for tapering in the coming months, this has now been priced in, which leaves little room for further upside moves.
Investors in Europe have been a little bit more jittery this morning, which has been reflected by some volatile markets early in the session. European indices have been bouncing between gains and losses all morning, something I expect to continue throughout the European session as investors refuse to commit either way ahead of the Fed press conference.
The Bank of England minutes had very little, if any, impact on the markets this morning. There were no surprises in the voting, with Sir Mervyn King once again being joined by David Miles and Paul Fisher in voting in favour of more quantitative easing. No change in the voting was expected here given that it was King’s last, as Governor of the Bank of England.
Ahead of the open we expect to see the S&P up 2 points, the NASDAQ up 6 points and the Dow up 16 points.
[B]European equities suffer Bernanke hangover[/B]
Today’s UK opening call provides an update on:
• Equities tumble on Bernanke comments;
• Fed to begin tapering later this year;
• Chinese manufacturing data weighs further on sentiment;
• Eurozone PMIs, UK retail sales and US employment in focus today.
European equity indices are expected to open more than 1% lower on Thursday, after Ben Bernanke made it absolutely clear that the Fed will begin to taper its asset purchases later this year, if the economic data continues to improve in line with projections.
This is about as black and white as it gets with the Fed, which is why we’ve seen such a sell-off in global equities, while US Treasury yields have gone through the roof and the greenback has rallied aggressively. Even a weaker yen wasn’t enough to prevent a sell-off in Japanese equities, despite the clear correlation between the two over the last six months. The Nikkei traded more than 1% lower in the Asian session over night.
Bernanke was surprisingly transparent in his press conference, which is something that can’t always be said about other central bankers around the world. The Fed Chairman made it very clear that if the economy improves in line with its revised projections, then tapering would begin later this year, with the asset purchases ceasing around the middle of next year. Given that there is only four more meetings this year, only two of which will be followed by a press conference with Bernanke, the consensus is that tapering will begin in September or December.
While Bernanke was very clear on this matter, he didn’t really tell us anything that the markets didn’t assume already. He’s been saying for months that the Fed would begin tapering when the economic data improves, which most assumed would be later this year, in either September or December. The only new information we have is the new projection, which make predicting the start of the end of QE slightly easier, however I don’t think that warrants the reaction we’re seeing in the markets.
While we may see equity markets remain in negative territory throughout the European session today, I think we may see them pare some of their losses later on in the session, as well as during the US and Asian sessions as well. At the end of the day, it’s going to be at least three months, and in my opinion six months, before the Fed begins tapering, so there’s not going to be a shortage of liquidity in the financial markets. On top of that, if the data does not improve in line with the new projections, there’s no reason why the Fed won’t hold off until early 2014.
Sentiment in Asia over night was not helped by the release of the HSBC manufacturing PMI for June, which showed the sector contracted at its fastest pace in nine months. The figure of 48.3, which was well below expectations of 49.4, is also the second consecutive contraction figure, which is only going to add to concerns that growth in China is going to be well below the levels that many had anticipated earlier this year.
It also goes some way to justifying HSBCs decision to revise its growth forecast for China significantly lower, to 7.4% this year and next, from 8.2% and 8.4%, respectively. This is now more in line with the original targets of the Chinese government, which begs the question, why were people’s expectations so high in the first place? At this stage, even the governments conservative 7.5% target is looking like an uphill task.
Looking ahead to the rest of the day and the economic calendar is looking pretty full. We have manufacturing and services PMIs out of Germany, France and the eurozone this morning, which will be watched closely. This will be followed by UK retail sales for May, which are expected to jump by 0.8% compared to a month earlier. Over in the US, we then have the weekly jobless claims, which are expected to remain low at 340,000, followed by some more housing data and the Philly Fed manufacturing survey.
Ahead of the open we expect to see the FTSE down 107 points, the CAC down 53 points and the DAX down 100 points.
[B] EURUSD[/B]
The euro is finding support this morning around 1.3250, a previous level of support and resistance, after falling more than 150 pips in the last 12 hours. We could now see the euro pare some of its heavy losses today, with the next major resistance level being 1.33. If we see the pair push below 1.3250, the next area of support should come around 1.32. Below here, 1.3175 should be a key level of support for the pair, as the middle bollinger band on the daily chart has consistently provided support and resistance in the past. A break below here would be quite a bearish signal for the pair, prompting a move back towards 1.3075, where it should find support from the 50 and 200-day SMAs.
[B]GBPUSD[/B]
Sterling is continuing to plummet this morning, despite falling more than 200 pips in the last 12 hours or so. Given how aggressive the sell-off has been here, I think the pair is overdue a correction of some kind. It has found support this morning from the 100-day SMA, which could now prompt that correction. In the longer term, I think we’re going to see further weakness in the pair, with the next level of support below here coming around 1.5379, where the 50-day SMA crosses the 50 fib level, of the move from 29 May lows to Monday’s highs. If we do see a retracement in the shorter term, the pair should find resistance around 1.5490, followed by 1.5560.
[B]USDJPY[/B]
The dollar has rallied strongly against the yen over the last few days, following more than three weeks of weakness in the pair. In the longer term, I think there’s still plenty more gains to come in the pair and what we’re seeing now is simply a retracement of the huge move higher from September 2012 lows to last months highs. That said, I’m not convinced that the retracement has completed yet. As a result, it’s worth keeping an eye on the 50 and 61.8 fib levels of the move from last months’ highs to this months’ lows. If the pair breaks above here, it would suggest that the retracement in the pair may be over. If not, we could still see further weakness here, with the 50 fib level of the bigger move, around 90.42, potentially being the target. Given its tendency to act as a key support and resistance level on the daily chart, the middle bollinger band could also provide a key hint about the future direction of the pair. A close above here would be quite a bullish signal.
0:09 Ben Bernanke press conference
2:17 Markets overreaction to Bernanke comments
4:51 UK retail sales and eurozone PMIs smash expectations
5:50 Jobless claims, housing data and manufacturing data this afternoon
Forex research: Global markets daily
[B]Investor sentiment shattered by Bernanke comments[/B]
Today’s US opening call provides an update on:
[ul]
[li]Bernanke comments weigh on investor sentiment;
[/li][li]Chinese manufacturing contracts for second month;
[/li][li]Positive eurozone PMIs overshadowed by Bernanke comments;
[/li][li]UK retails smash expectations but have little market impact.
[/li][/ul]
Equity markets are under pressure in Europe this morning, driven largely by the prospect of Fed tapering later this year. Futures are pointing to a similar open in the US, with the S&P, Dow and Nasdaq expected to open almost 1% lower.
It’s been clear for a long time that the huge monetary stimulus employed by the Fed has been largely responsible for the rally in the equity markets, and the reaction to Ben Bernanke’s comments last month and again yesterday confirm that. The strange thing about the reaction yesterday is that he didn’t tell us too much that we didn’t already expect.
With that in mind, the reaction we’re seeing in the markets today, and potentially tomorrow, is probably an overreaction to Bernanke’s press conference yesterday. In fact, I fully expect to see a correction next week, once the initial panic wears off and everything is put into perspective.
While Ben Bernanke did suggest that tapering will probably happen later this year if the economy performs in line with projections, the earliest were probably looking at is December. There’s a lot of talk about September but I think this would be premature given that the data is far from supporting that of a sustainable recovery. Plus, this all assumes the economy will perform in line with projections, and as we’ve seen on numerous occasions in recent years, things quite often don’t go to plan.
The shattered sentiment in the markets this morning hasn’t been helped by the release of the HSBC manufacturing PMI for China, which came out well below expectations, at 48.3. This is the second consecutive contraction figure here and comes less than 24 hours after HSBC revised China’s growth forecast for this year and next significantly lower. It was always obvious that original growth forecasts of above 8% for this year were overly ambitious, the problem now is that the country even looks unlikely to hits its own, rather conservative, 7.5% target set at the start of the year.
A long list of positive data out of the UK and the eurozone this morning has done nothing to lift sentiment. Manufacturing and services PMIs for France and the eurozone came in well above expectations for June, and much closer to the 50 level which separates growth from contraction, while Germany’s services PMI jumped comfortably back into growth territory.
These figures are very encouraging for the eurozone, however it’s difficult to get too carried away when the road to recovery is so long and full of potential stumbling blocks. Plus we saw encouraging PMI figures earlier this year which failed to be reflected in the data.
The UK retail sales figure for May on the other hand was very encouraging, coming in well above expectations, with growth of 2.1% compared to a month earlier. Last months’ figure was also revised higher which is another positive sign for the UK economy. We saw a brief reaction to the data in the cable charts, however it wasn’t long before it was trading back around the daily lows.
There’s plenty more data to come from the US on Thursday, starting with weekly jobless claims. These are expected to rise slightly to 340,000, up from 334,000 the week before. It will be interesting to see the reaction to this figure in the markets today now that the Fed has made its position extremely clear.
Ahead of the open we expect to see the S&P down 12 points, the NASDAQ down 26 points and the Dow down 101 points.
[B]Europe to open lower as Fed tapering continues to weigh on sentiment[/B]
Today’s UK opening call provides an update on:
• Stock markets continue to suffer as a result of the Fed’s decision to taper later this year;
• Commodity prices take a big hit, with Gold falling below $1,300 for the first time since 2010;
• Economy calendar looks light on Friday, although data was mostly overlooked on Thursday.
Equity markets across the globe are continuing to make substantial losses, following the announcement by the Fed that it will probably begin tapering its asset purchases later this year.
US indices suffered heavy losses once again on Thursday, with the S&P 500 having its worst day since November 2011. This really highlights just how important the Fed’s asset purchases have been for investors, and therefore stock markets, over the last nine months. I’m sure things will calm down next week, with the indices potentially paring some of the heavy losses sustained in the last couple of days. However, we can wave goodbye to those daily record highs that the Dow and S&P were hitting since the turn of the year.
It’s not just the US that’s suffering the hangover of the Fed’s announcement, Asian markets overnight took quite a hit as well, while European indices are expected to open deep in negative territory. Commodity prices are also under pressure following the announcement, with Brent Crude now down around $4, while Gold has suffered its biggest drop since the 80’s, falling back below $1,300 for the first time since September 2010, which could now prompt a move back towards $1,150 in the coming months.
The economic data out of Europe and the very positive on Thursday, although you wouldn’t guess it by looking at the markets. The majority of the data, if not all of it, was completely ignored. It seems nothing can cheer investors up when the prospect of losing the Fed’s huge stimulus program lies ahead.
There’s very little out in the way of economic data on Friday, so it’s likely to be a quiet end to the week, with stocks continuing to edge lower throughout the day. In the eurozone, we have the current account data for April, while in the UK, the public sector net borrowing figure is due to be released for May. This is expected to show a sharp rise in government borrowing last month to £13.75 billion, up from £8.035 billion in April.
Ahead of the open we expect to see the FTSE down 12 points, the CAC down 3 points and the DAX down 6 points.
0:41 Greek coalition reduced to two major parties
1:38 CHART – Gold analysis
2:34 CHART – Silver analysis
3:18 CHART – EURUSD analysis
Forex research: Global markets daily
The Fed delivered the global financial markets its biggest shock this past week since the US default brinkmanship resulted in the loss of country’s triple-A rating back in August of 2011. And, the central bank didn’t even change policy. The group’s massive $85 billion-per-month QE3 stimulus program survived the FOMC meeting this past week, yet the 10-year Treasury note was sold heavily enough to drive its yield over 40 basis points higher for the biggest weekly increase in a decade. Meanwhile, the Dow Jones FXCM Dollar Index (ticker = USdollar) rallied 2.4 percent – the strongest move in three years- and the S&P 500 dropped 2.1 percent for its worst performance this year. This revival of risk-appetite based correlations suggests a current of eroding sentiment is carrying us on a market-wide delevering effort that has enough weight to develop a lasting bull trend for the dollar. Yet, does this broad volatility have the necessary elements to send EURUSD back towards 1.2000 or USDJPY up to 110. It is highly unlikely we see both. To send EURUSD plunging 1,000 pips, we will likely need a combination of Euro-area financial risk and general risk aversion (the latter usually instigates the former). Yet, the level of risk aversion to carry the world’s most liquid pairing that far would spur a carry trade unwind for the stimulus-laden yen crosses that sent USDJPY tumbling alongside AUDJPY.
Australian Dollar May Find Fuel for Recovery in Bond Yield Shift
The Australian Dollar faced renewed selling pressure last week, touching the lowest level in close to three years against its US namesake, after the Federal Reserve monetary policy announcement added fuel to speculation about a cutback in asset purchases emerging on the horizon. This sparked a widespread reversal in trends dependent on the presumption of continued Fed money-printing, sending the US Dollar broadly higher against the majors as dilution fears unraveled.
[B]Attention on US data this week as tapering talk continues[/B]
Today’s UK opening call provides an update on:
• US in the spotlight this week, following Fed press conference on Wednesday;
• Focus on the consumer with the release of confidence, spending and sentiment data;
• Slight improvement expected in German Ifo business climate in June.
The economic calendar is going to be watched closely this week, with US data, in particular, drawing a lot of attention following Ben Bernanke’s press conference last week.
Now that the Fed has revealed the necessary conditions for tapering to begin later this year, investors are going to be tracking the economic data out of the US much more closely, and there’s plenty to look out for this week. It’s going to be a slow start to the week, with no economic data out of the US on Monday, however things will pick up starting on Tuesday with durable goods orders, consumer confidence and housing data due to be released.
On Wednesday, the focus will be firmly on the first quarter GDP figure for the US, which is expected to show annualised growth of 2.4%, in line with the new Fed forecasts for this year. On Thursday, we have the usual weekly jobless claims, along with more consumer and housing data, before things are wrapped up on Friday with the release of the UoM consumer sentiment figure.
Given the reaction to the Fed press conference last week, investors appear far less bothered about the Fed’s improving forecasts for growth in the US over the next 18 months than they do about the potential for tapering of its asset purchases later this year. As a result, it will be interesting to see how they react to the data this week, which is very focused around the consumer, and therefore extremely important given the impact consumer spending has on the economy. We could see a situation in which investors sell their risky assets, such as stocks, on the release of strong data as it could lead to the Fed tapering as early as September.
The economic calendar as a whole is looking pretty empty, not just in the US. The only major economic release on Monday will be the Ifo business climate data out of Germany. A small improvement to 106.0 is expected here, as countries in the eurozone continue to benefit from the lack of focus on the region, with markets more bothered about the US economy and the Fed at the moment.
Ahead of the open we expect to see the FTSE down 5 points, the CAC down 5 points and the DAX down 15 points.
[B]EURUSD[/B]
The euro is continuing to look bearish this morning, with last weeks candle closing below the opening level from the week before, thereby creating a bearish engulfing pattern. Also, today’s candle opened below Friday’s closing price and below 1.31 which is a bearish signal. The gap has already been pretty much filled over night and there appears to be strong resistance around 1.31 now, which again is a very bearish signal. The next major support level for the pair should come around 1.3075, from the 50 and 200-day SMAs. Below here, the pair should find further support around 1.3032, from the 61.8 fib level. If this is broken, it would suggest the recent uptrend is merely a retracement of the longer term downtrend, dating back to the start of the year, prompting a move back towards May’s lows around 1.28. If we see the pair break back above 1.31 today, the next level of resistance should come around 1.3160, followed by 1.3250.
[B]GBPUSD[/B]
The bearish engulfing pattern on the weekly chart suggests we’re going to see further downside in this pair in the coming weeks. The pair started the week below 1.54 and has so far struggled to break back above this level. If we do see a move lower, the pair should find support around 1.5320 from the 100-day SMA. This is also a previous level of resistance so should provide significant support for the pair. Below here, 1.5291 should be a major support level and should provide some insight into the medium term direction of the pair. This is the 61.8 fib level of the move from last months’ lows to this months’ highs and a break below here would suggest this is not a retracement, but a continuation of the longer term downtrend.
[B]USDJPY[/B]
The dollar is trading higher against the yen for a sixth consecutive day on Monday. The pair has found resistance early in the session though around 98.75, the 50% retracement of the move from last months’ highs to this months’ lows. If we see a break above here, it should prompt a move back towards 100, previously a key level of resistance. The 61.8 fib level, around 99.93, should also provide strong resistance for the pair. Especially if the recent strength is in fact just a retracement of the downtrend, dating back to May’s highs. That said, I’m not convinced yet that either of these fib levels will hold. We may not see them broken today, but I do think there’s further gains to come in this pair and I don’t think it has reached the highs it’s capable of. The break above the middle bollinger band on the daily chart supports this more bullish outlook. If we do see weakness in the shorter term, I expect the middle bollinger band to provide support for the pair around 97.90.
[B]European indices near 2013 lows on Fed tapering fears[/B]
Today’s US opening call provides an update on:
[ul]
[li]CAC hits 2013 lows, FTSE and DAX not far behind;
[/li][li]US data in focus this week following Bernanke comments;
[/li][li]German businesses more confident about next six months.
[/li][/ul]
Sentiment among European investors has remained extremely low this morning, as indices continue to give back all gains from the first five months of the year.
The CAC became the first index to fall below the end of December closing price and the DAX and FTSE aren’t far behind. The sell-off in equities has been massive and really goes to show how big a contributor the Fed’s asset purchases have been to the rally.
We’re not seeing any signs yet that investors are looking to get back in, however a correction is surely around the corner. European indices are down more than 10% since hitting 2013 highs last month and the reaction to Bernanke’s comments has been a little over the top.
US futures are looking no better than their European counterparts though, with the S&P, Dow and Nasdaq expected to open almost 1% lower. There’s a lot of US data scheduled to be released this week, which should result in plenty of volatility in the markets. It will be interesting to see how investors react to the data, with positive data likely to encourage selling as it will only increase the chance of tapering later this year.
It has been a quiet morning so far in Europe, with very little on the economic calendar to drive sentiment. That said, investors appear so focused on the Federal Reserve at the moment, I’m not sure how much of an impact the data would have.
The German Ifo business climate figure had no impact on the markets, coming in, as expected, at 105.9. This is a small improvement on May’s figure and suggests that German businesses are confident that conditions are only going to improve as the year goes on.
Ahead of the open we expect to see the S&P down 14 points, the NASDAQ down 21 points and the Dow down 115 points.