12 / 12 / 2017 | Technical Analysis

Technical Analysis 12.12.2017 - AUD/JPY: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is crossing Kijun-sen from below, the blue line is directed downwards, while the red one remains horizontal. Confirmative line Chikou Span is crossing the price chart from below, current cloud is going to reverse from descending to ascending. The instrument has entered the cloud. The closest support level is Tenkan-sen line (85.31). The closest resistance level is the lower border of the cloud (85.54).



On the daily chart Tenkan-sen line is below Kijun-sen, the lines are horizontal . Confirmative line Chikou Span is below the price chart, current cloud is descending. The instrument is trading between Tenkan-sen and Kijun-sen lines. The closest support level is Tenkan-sen line (85.31). The closest resistance level is Kijun-sen line (86.01).



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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12 / 12 / 2017 | Market News

Fundamental Analysis 12.12.2017 - Market Outlook

After yesterday’s light schedule, we have a more substantial roster of events today. The day starts off with the British inflation data. The inflation rate is forecast to remain unchanged from the previous month, both on the headline figure and core inflation. This would suggest that inflation may have peaked for now. Certainly it looks as if the producer price index (PPI) peaked back in February 2017 and March 2017.  

With all these numbers coming out, someone might think which is better to watch? As usual, if one is tremendously different than expectations, then that one will garner the most attention. But if they’re all just a little different than the market consensus, then the core CPI appears to have the greatest impact on the pound. EUR/GBP tends to respond better to the data than GBP/USD does.



Next up is the German ZEW survey. This is a survey of analysts and investors, it’s more of a sentiment indicator than anything. I found that the current situation index is more closely correlated with the subsequent movement in EUR/USD than the current situation index. Furthermore, the relationship is backwards – that is, EUR/USD tend to decline (ie EUR weakens) when the index beats the market consensus.



The US National Federation of Independent Businesses (NFIB) small business optimism index has come off the euphoric peak hit right after last year’s election, but is beginning to come back a bit. It’s expected to be up slightly today. Meanwhile, the employment sub-index, which has already been announced, continues to soar. That’s a good indicator for the upcoming nonfarm payrolls, because most people in the US work for a small business. 



The US producer price index (PPI) is forecast to continue rising, although that may be because of oil prices – the rate of increase in core PPI, which excludes energy and food, is forecast to be unchanged. In any case both are well above the Federal Reserve’s target inflation rate of 2%, which is bullish USD.



Economists don’t forecast the New Zealand retail food price index, but it still seems to influence NZD significantly sometimes. 

It’s the same story with the Westpac Australian consumer confidence index. The market pays attention to the month-on-month change here, not the actual index level. 

Japan’s machinery orders data is released today. This month the month-on-month change is expected to be higher than the previous month, but it’s expected to decline more on a year-on-year basis. Nonetheless, I suspect that the higher-than-average rise on a month-on-month basis may prove positive for the yen, if anything.  

Overnight we will start getting the results from the special election in the US state of Alabama. The election pits Democrat Doug Jones against Republican Roy Moore. Doug Jones is the former US Attorney for a region in Alabama. Roy Moore is a former Chief Justice of the Alabama Supreme Court.

Currently the Republicans have only a two-seat majority in the Senate (52-48). The Vice President can break a tie, so they can lose two votes and still win. If Doug Jones wins, that margin of safety will be reduced to one. Even more importantly, that extra seat would give the Democrats a chance to take control of the Senate at the mid-term elections in November 2018. On the other hand, if Roy Moore wins, the Republicans are likely to retain their majority in the Senate next year. In other words, this could be the decisive seat a year from now.

I’m not sure how the dollar will react one way or the other. Probably, the market will favor continuity over disruption and Republican control over gridlock, meaning that a Roy Moore victory could be USD-positive.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
 





 

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11 / 12 / 2017 | Technical Analysis

Technical Analysis 11.12.2017 - EUR/JPY: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is above Kijun-sen, the red line is directed upwards, while the blue one remains horizontal. Confirmative line Chikou Span is approaching the price chart from below, current cloud is ascending. The instrument is trading above Tenkan-sen and Kijun-sen lines; the Bullish trend is still strong. The closest support level is the upper border of the cloud (133.346). One of the previous maximums of Chikou Span line is expected to be a resistance level (134.225).



On the daily chart Tenkan-sen line is above Kijun-sen, the red line is directed upwards, while the blue one remains horizontal. Confirmative line Chikou Span is above the price chart, current cloud is ascending. The instrument is trading above Tenkan-sen and Kijun-sen lines; the Bullish trend is still strong. The closest support level is Tenkan-sen line (133.086). One of the previous maximums of Chikou Span line is expected to be a resistance level (134.414).



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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11 / 12 / 2017 | Market News

Fundamental Analysis 11.12.2017 - Market Outlook

USD is opening little changed overall. The better-than-expected nonfarm payroll figure released on Friday 8th December 2017 had little net effect on the currency, as the good nonfarm payroll number was offset by a weaker-than-expected average hourly earnings number. NZD rose after the Reserve Bank of New Zealand (RBNZ) named Adrian Orr as its new Governor. Adrian Orr, 54, is currently Chief Executive of the New Zealand Superannuation Fund, the country’s sovereign wealth fund. He was previously a Deputy Governor and Head of Financial Stability at the Reserve Bank of New Zealand; Chief Economist at Westpac Banking Corp. in New Zealand; and Chief Manager of the Economics Department at the Reserve Bank of New Zealand. He has also worked at New Zealand’s Treasury and the Organisation for Economic Co-operation and Development.

While little is known about Adrian Orr’s views on inflation, he is seen as having the standing and ability to manage the large changes that the new Labour government is seeking for the Reserve Bank of New Zealand. The government wants the Reserve Bank of New Zealand to have a dual mandate that would include full employment as well as inflation, and to change its governance structure to include outside experts on its policy committee.

NZD has been the only G10 currency to lose ground vs USD on a spot basis this year. With this bit of uncertainty over for now, it could be that speculators decide to close out some of their shorts before the year end and the currency rallies further. 

GBP is down, partly on “buy the rumor, sell the fact” profit-taking last week and partly due to a statement by an EU official that a trade agreement was not realistic by March 2019, the time Britain is required to leave the EU. Although the UK and EU reached an agreement last week that will allow the talks to move onto the next stage, in fact some of the key aspects of the agreement were deferred until later.

Notably, there was no real solution to the mutually contradictory goals of maintaining an open border with the Republic of Ireland while leaving the EU’s single market and the rules that membership requires. This problem was papered over for now by the UK committing to maintaining “full alignment” with EU rules. It’s possible that the Cabinet or Parliament will eventually reject this agreement.

In any event, this week I would expect the EU to offer lavish praise for UK Prime Minister Theresa May in an effort to bolster her position and this may boost GBP somewhat. However, now that this stage of the negotiations is over, it could also be that “Brexit fatigue” sets in and investors concentrate more on UK economics than politics. In that case, expectations of a steady Consumer Price Index on Tuesday 12th December 2017 and no change at the Bank of England on Thursday 14th December 2017 could push GBP lower. 

Today’s market

The week starts off quietly. The only indicator out during the European and US day is the US Job Openings and Labor Turnover Survey (JOLTS) report, which is kind of like the mirror image of the unemployment figure – instead of people looking for jobs, this is jobs looking for people. It’s expected to rise back towards the record highs seen back in June 2017 and July 2017. Having so many job openings while growth in payrolls gradually slows indicates a growing labor mismatch – lots of jobs but difficulties in filling them. That suggests employers will have to start using the time-honored technique of raising wages to attract workers, which could mean higher inflation down the road. This could be USD-positive.



Not much else on the agenda until Tokyo opens, when Japan’s Producer Price Index (PPI) will be released. It’s expected to show a slight decline in the rate of growth of producer prices. As you can see from the graph the Producer Price Index (PPI) does exert some pull on the Consumer Price Index (CPI), which makes it a significant indicator for monetary policy. That suggests the decline may be slightly negative for the yen. 

The National Australian Bank (NAB) business indices (business conditions & business confidence) don’t have forecasts, but they do sometimes move AUD. 



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

 

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11 / 12 / 2017 | Market Outlook

Marshall Gittler's Market Outlook 11.12.2017-15.12.2017

Themes of the week: 4 G-10 central bank meetings, EU summit on Brexit, by-election in the US, data releases for the UK, US and EU.

 
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08 / 12 / 2017 | Technical Analysis

Technical Analysis 08.12.2017 - AUD/JPY: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is below Kijun-sen, the red line is directed upwards, while the blue one remains horizontal. Confirmative line Chikou Span is below the price chart, current cloud is descending. The instrument has broken through the cloud and is still rising. The closest support level is the upper border of the cloud (85.129). The closest resistance level is Kijun-sen line (85.423).



On the daily chart Tenkan-sen line is below Kijun-sen, the red line is directed upwards, while the blue one remains horizontal. Confirmative line Chikou Span is below the price chart, current cloud is descending. The instrument has been corrected to the Tenkan-sen line. One of the previous minimums of Chikou Span line is expected to be a support level (84.430). The closest resistance level is Tenkan-sen line (85.286).



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
...
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08 / 12 / 2017 | Market News

Fundamental Analysis 08.12.2017 - Market Outlook

The key FX market development over the last 24 hours was obviously the surge in GBP amid reports that Britain and Ireland are nearing an agreement on the difficult issue of what to do about their border. Both the British and the EU side have told people that a breakthrough may be announced this morning, although when last heard from, the Democratic Unionist Party (DUP), the small Northern Irish party that holds the balance of power in Parliament, was not yet on board. This is the last of the three issues preventing talks from going on to the next stage.  A resolution of the Irish border question, even a temporary solution enough to allow them to begin trade talks, would be a big plus for Britain and would probably result in further strengthening of the pound.

JPY on the other hand fell significantly. It was unclear why. Several possible reasons: 1) continued rise in stocks (Nikkei up 1.3% today); 2) reduced risk of US government shutdown; and 3) year-end funding demand for dollars. The USD/JPY 3-month cross-currency basis swap widened out by 10 bps, indicating that Japanese borrowers are trying to get dollars over the year-end. 

USD continued to firm as the House of Representatives approved a two-week extension of government funding, averting (for now) a shutdown of the government through 22 December 2017.

Today’s market

The big event today is of course the US nonfarm payrolls. They’re expected to continue bouncing back. The market forecast is 195k, down from 261k last month. But if we look at the five-month average, which would cover the entire period affected by the hurricanes, that works out to around an average of 164k a month – about equal to the 169k in the previous five months. So it looks like the market is in fact forecasting that things have finally gotten back to normal. 

The suggested unofficial market forecast number on Bloomberg is significantly higher than economists’ forecasts at 221k. This suggests that if anything, investors are braced for a higher figure than the market consensus. This leads me to think that there may be more downside potential to the figure than upside, at least with regards to the NFP figure itself. 

With that, they’re also forecasting that earnings growth will also get back to normal. The rate of growth fell last month as a lot of lower-paid workers who had been laid off came back to work, but it’s expected to recover towards its pre-hurricane high now. That should help to convince any waverers that higher inflation is on its way eventually and push up US interest rates, thereby supporting the dollar.

The unemployment rate and average work week are expected to be unchanged. 

Aside from that, it’s “short-term indicator day” at Britain’s Office of National Statistics (ONS). This is the day they announce the industrial production, trade, and construction output all at the same time. The latter isn’t of much interest to the FX market.

The UK production data are expected to be poor. Both industrial and manufacturing output are forecast to have shown no increase from the previous month, and the year-on-year rates of growth of both are expected to slow.



At the same time, the UK trade figures are expected to show a widening in the trade deficit, both on a merchandise trade basis and including invisible trade.

In short, the two together could be negative for GBP. EUR/GBP responds in a more reliable fashion to these indicators than GBP/USD does. My research indicates that the trade figures have a bigger and more robust relationship to the data than the industrial or manufacturing production do. Within that, the market seems to pay more attention to the visible trade figure than to the overall trade figure. I would guess that’s because visible trade is more cyclical and therefore says more about where the economy is headed in the business cycle. In any case though, the impact of these figures may be overwhelmed by any Brexit developments, particularly if the talks fall through. In that case, nothing would help GBP.

The US Baker Hughes rig count is expected to show yet another increase, albeit a smaller one than recently. This indication of further supply increases to come may keep oil on its declining trend.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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07 / 12 / 2017 | Technical Analysis

Technical Analysis 07.12.2017 - EUR/JPY: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line has crossed Kijun-sen from above, the red line is directed downwards, while the blue one remains horizontal. Confirmative line Chikou Span is approaching the price chart from below, current cloud is going to reverse from ascending to descending. The instrument is trading below Tenkan-sen and Kijun-sen lines; the Bearish trend is still strong. One of the previous minimums of Chikou Span line is expected to be a support level (132.35). The closest resistance level is the upper border of the cloud (132.80).



On the daily chart Tenkan-sen line is above Kijun-sen, the lines are horizontal . Confirmative line Chikou Span has crossed the price chart from below, current cloud has reversed from descending to ascending. The instrument is trading around lower border of the cloud. One of the previous minimums of Chikou Span line is expected to be a support level (132.35). The closest resistance level is Kijun-sen line (132.76).



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
...
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07 / 12 / 2017 | Market News

Fundamental Analysis 07.12.2017 - Market Outlook

I think there’s a bigger concern for the dollar coming up though as the market may begin to focus on the possibility of another US government shut-down. The money to fund the government runs out tomorrow and Congress doesn’t seem to have come up with any solution to the problem yet. That will certainly be the focus of attention today. As the graph below shows, the price of US T-bills maturing after today has plunged (= the yield has risen) compared to those maturing today, indicating that the market is seriously concerned about the possibility of the government running out of money. If there is a shut-down, USD is likely to fall sharply.



CAD was the big mover overnight after the Bank of Canada left rates unchanged and reiterated that it “will continue to be cautious” about future rate hikes. Some analysts were expecting that following the recent improvement in the labor market, the Bank would take a more hawkish stance. As a result, the market pushed back the expected time for the next rate hike and CAD fell. The 2.3% fall in oil prices didn’t help, either.

NZD fell after milk co-operative Fonterra lowered its forecast payment to farmers by 35 cents to NZD 6.40/kg.

Today’s market

Germany releases its industrial production data early in the European day today. Unlike the factory orders, industrial production is expected to show an acceleration in output on both a month-on-month and year-on-year basis. I assume that would tend to confirm the other information that we’ve been seeing about the healthy German economy and would therefore be positive for the euro.



Swiss FX reserves are forecast to be up CHF 3.0bn from the previous month. This compares with a 91-pip rise in EUR/CHF during the month. As the graph shows, this is a greater-than-usual rise in EUR/CHF in relation to the rise in reserves. This suggests that the Swiss National Bank (SNB) doesn’t have to intervene as much as it did previously in order to push the pair higher.

Although we can’t draw much conclusion from one month’s data, it may be that with the European Central Bank (ECB) announcing the eventual end of its quantitative easing program, the market is assuming that the Swiss National Bank will be the last player on the block to stop its extraordinary measures. They would naturally start factoring in more spread widening between the two currencies. If the figures do show that this is the case, they could be negative for the CHF.

The Halifax house price index is expected to show a slower pace of month-on-month growth and slowing year-on-year growth in houses in the UK. This would be in line with the Nationwide house price index, which came out last week and also showed a slowdown. If it comes out as expected, it won’t be much of a surprise to the market and therefore probably won’t cause much of a stir.

The second estimate of Q3 EU GDP was unchanged from the first estimate. Looking at the data from 2010, there’s only a 10% chance that the third estimate will be revised, and even if it is, it’s usually only revised by 10 bps.

Mario Draghi will speak today, but not in his capacity as the President of the ECB but rather as the Chair of the Group of Governors and Heads of Supervision at the Bank for International Settlements. This is the oversight body of the Basel Committee on Banking Supervision, the primary global standard setter for the prudential regulation of banks.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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06 / 12 / 2017 | Technical Analysis

Technical Analysis 06.12.2017 - CAD/CHF: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is above Kijun-sen, the lines are horizontal . Confirmative line Chikou Span is above the price chart, current cloud is ascending. The instrument is trading between Tenkan-sen and Kijun-sen lines. The closest support level is the upper border of the cloud (0.77155). One of the previous maximums of Chikou Span line is expected to be a resistance level (0.78042).



On the daily chart Tenkan-sen line is below Kijun-sen, the lines are horizontal . Confirmative line Chikou Span is crossing the price chart from below, current cloud is descending. The instrument has entered the cloud. The closest support level is the lower border of the cloud (0.77422). The closest resistance level is the lower border of the cloud (0.78039).



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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