22 / 05 / 2018 | Technical Analysis

Technical Analysis 22.05.2018 – AUD/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 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 (83.67). One of the previous maximums of Chikou Span line is expected to be a resistance level (84.50).



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 has broken through the cloud and slowed down its growth. The closest support level is the upper border of the cloud (83.69). One of the previous maximums of Chikou Span line is expected to be a resistance level (84.65).



The Technical Analysis is provided by Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
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22 / 05 / 2018 | Market News

Fundamental Analysis 22.05.2018 – Market Outlook

Market Recap
Attention yesterday Monday 21st of May 2018 was focused on Italy, where a proposal to issue “mini-BOTs” – notes that would be backed by expected tax receipts in the future – sent Italian yields soaring. (BOTs are Buoni Ordinari del Tesoro, a common Italian Treasury bill or short-term credit note.) The move is seen as a way of both getting around the EU’s rules on bond issuance and also in effect creating a parallel currency that would trade at a discount to the euro, since the “mini-BOTs” wouldn’t pay any interest. The very idea sent investors rushing out of Italian bonds and into German Bunds, with the result that the Italy-Germany 2-year spread widened out by 21 bps in one day!



Nonetheless, EUR managed to gain vs USD nonetheless as longer-dated US interest rates declined slightly, removing the main force pushing the dollar higher recently. It’s hard to discern why bond yields declined, however. In fact, TIPS breakevens continued to move higher as US gasoline prices approached $3 per gallon, a price that’s considered expensive in the US

Furthermore, the Fedspeak was generally hawkish. Atlanta Fed President Raphael Bostic (voter) said “inflation is likely to run a bit above 2 percent for a while” and that while monetary policy should be flexible, i.e. the Federal Reserve System (Fed) shouldn’t panic if there is a modest overshoot of inflation, he still favors two more rate hikes this year. Philadelphia Fed President Harker (non-voter) said that inflation might even reach 2.5% this year and that he could be persuaded to support four rate hikes.

With inflation expectations continuing to move higher and Fed officials moving towards more tightening, it’ll be no surprise if bond yields resume their climb soon and the dollar resumes trending upward with them as well.



CAD was the best-performing currency. There seemed to be no particularly cause, just a reaction to the big drop on Friday 18th of May 2018 in a thin holiday market (Canada was on holiday yesterday for Victoria Day). In fact if anything, the US-Canada yield spread moved further in the US’ favor. But oil prices were higher too. CAD may also be benefitting from the move to put the US-China trade war “on hold,” which not only helped all the commodity currencies but also suggests the US isn’t really intent on ripping up existing trade relations. Nonetheless, it still feel that the recent poor data for Canada may cause some reassesment of the likelihood of Bank of Canada tightening and therefore cause CAD to weaken ahead of next week’s Bank of Canada meeting.

Today’s market

There may not be any headlines coming out today, but certainly the main event is the restart of Brexit talks in Brussels. The big debate in the UK is how to finesse the problem of Britain’s border with Ireland. UK Prime Minister Theresa May made a huge concession recently and agreed that all of the UK will have to remain tied to a customs union with the EU after 2021 until they work out some alternative to a “hard border” with Ireland. Under this plan, all of Britain would be covered by the EU’s common external tariff. That would eliminate the need for any customs border between Ireland and the UK.

The plan is deeply unpopular with many of the “Leavers,” as it leaves Britain more attached to the EU than they would like. Furthermore it has no clear end, meaning it could just be a path to “EU-lite.”

The bigger problem though is that the EU has already rejected this approach. “If this is it, we will have a crisis,” said one senior EU diplomat who’s involved in the talks.

We will see this week how the irresistible force of Brexit meets the immovable object of the EU, or more concretely, the Ireland/UK border.

Early in the day, the UK Parliament’s Treasury Committee holds hearings. There will be a reappointment hearing for Bank of England Monetary Policy Committee (MPC) member Jan Vlieghe. And at the same time, Bank of England (BoE) Governor Mark Carney plus some of his MPC colleagues, such as Dave Ramsden, Michael Saunders, and the aforementioned Mr. Vleghe will testify to the committee about the BoE’s recent Inflation Report. To remind you, in the May 2018 inflation report the Bank lowered its growth forecast for this year and projected that inflation would fall faster than it had previously anticipated. The tone of the testimony is therefore likely to be dovish, which could be negative for the pound.



The UK public sector net borrowing (excluding banks) is expected to be up sharply, but since the data aren’t seasonally adjusted, what matters is how that would affect the 12-month moving average. In this case the market consensus forecast would lower the average slightly, meaning the government is still managing to narrow its deficit. This could be positive for the GBP. Note though that there could be a negative surprise (greater-than-expected borrowing) because of the shift in Easter, which could affect VAT receipts.



The Confederation of British Industry (CBI)’s industrial trends survey is a second-tier indicator. It probably won’t get much attention today, what with the Parliamentary testimony and the Brexit talks going on. But with little else on the schedule and lots of mystery surrounding the state of the UK economy, it could. In any event if it does, it’s could be negative as the orders DI is expected to fall. Selling prices are expected to remain constant for the third month in a row. 



Other indicators out today include Canadian wholesale trade sales and Richmond Fed manufacturing index. Overnight we get the Westpac leading index for Australia; no forecast is available.

The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
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21 / 05 / 2018 | Technical Analysis

Technical Analysis 21.05.2018 – EUR/JPY: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is crossing Kijun-sen from below, the lines are horizontal . Confirmative line Chikou Span is approaching the price chart from below, 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 (130.49). The closest resistance level is Tenkan-sen line (130.67).

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 (130.32). The closest resistance level is the upper border of the cloud (130.87). 


The Technical Analysis is provided by Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
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21 / 05 / 2018 | Market News

Fundamental Analysis 21.05.2018 – Market Outlook

Market Recap

The US and China on Saturday 19th of May 2018 announced a face-saving agreement that allows the two to call an early end to their "trade war", right before the 21st of May 2018 deadline for comments about the proposed tariffs. The statement doesn’t make any concrete promises on China’s side, but even so it’s enough for the Administration to claim “victory.” As a result, USD was higher across the board despite a notable decline in US Treasury yield (down 6 bps in the 10-years).

The China agreement is a big win for USD, because if we look at the various uncertainties that the US faces, trade was far and away the #1 question. The latest Baker, Bloom & Davis indices of economic policy uncertainty are mostly below average, certainly so for fiscal and monetary policy, which are the main ones affecting the FX market. Only trade is above average. (Note:  latest data available is from March 2018.) With the uncertainty in this policy area down somewhat, the dollar should be able to rally further, especially as uncertainty with regards to the key fiscal and monetary policy areas in Europe has risen in response to the Italian challenge.

The news is good for US stocks, which were higher in futures trading Monday 21st of May 2018 morning, and therefore for the risk-sensitive currencies AUD and NZD.

It is suspected that Italian politics are manifesting themselves in the currency market through EUR/CHF. As you can see, CHF strengthened considerably vs both USD and EUR on Friday 18th of May 2018 afternoon. It’s since fallen back vs USD, but is steady at the higher levels vs EUR.

CAD was the worst-performing major currency after Friday’s 18th of May 2018 disappointing economic statistics. Retail sales ex autos fell instead of rising as expected while the headline rate of Consumer Price Index (CPI) inflation slowed instead of remaining unchanged as expected. The currency is recovering slightly this morning however. Nonetheless, with inflation apparently slowing and oil prices probably at or near their peak, the prospects for a more hawkish Bank of Canada meeting next week are slim. I’d expect to see CAD weaken further ahead of the 30th of May meeting.

GBP also weakened on yet another threat:  appearing on TV on Sunday 20th of May, Scotland First Minister Nocola Sturgeon said she wanted to “restart a debate” about Scottish independence and would consider another referendum on the topic in the autumn, once there’s some clarity about the Brexit outcome. So now Scotland is added to the Ireland problem and it looks like the United Kingdom isn’t so united any more. Adding this problem too is negative for sterling.

Commitment of Traders (COT) report

Speculators continued to trim their short USD positions both by reducing long currency positions and adding to short positions. There was a small exception in CAD, where investors reduced their shorts a bit.
 

Speculators continue to pile into short CHF positions. They’re now the shortest they’ve been over the last five years, but still less than half what they were back in 2007, so there’s plenty more room to go. Asset managers (not shown) meanwhile held record short CHF positions.

Speculators reduced their “inflation trade” positions somewhat, cutting both their long WTI and short US Treasury positions. No surprise as oil rises to its highest level in four years and bond yields to their highest level in seven years.

Today’s market

The only major indicator out is the Chicago Fed National Activity Index (CFNAI) for April 2018. The CFNAI is different from the other regional Federal Reserve System (Fed) indices, which gauge conditions in that Fed district. The Chicago index is designed to gauge overall economic activity and related inflationary pressure on a national basis, not regional. It’s comprised of 85 existing monthly indicators of national economic activity. A positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend. Although the components have all been previously announced, the indicator is one of the more closely watched among those issued by the various regional Feds. It’s expected to be higher, well above the six-month moving average, which should corroborate the estimates of stronger growth in Q2. It could be positive for the dollar.

European Central Bank (ECB) Governing Council member Ewald Nowotny will give the keynote speech at the Czech National Bank’s Research Open Day 2018. He’s been the most vocal ECB member calling for the end of QE and the normalization of policy. His statements on the subject were market-moving at first, but now he’s just repeating the same theme, so not likely to affect the euro. Just Thursday 17th of May 2018 for example he said the ECB “shouldn’t wait too long with normalizing monetary policy, given the situation of the economy.” “The asset purchase program that runs until September 2018 should be ended around that time, or step by step. There  should be a rate increase within a foreseeable period, and as third step, the ECB should begin to stop replacing the maturing assets.”

Atlanta Federal Reserve System (Fed) President Raphael Bostic will speak on the subject of "Welfare Economics: Trade and a Review of Principles.” I have no idea whether the speech will contain anything market-moving. Bostic is a voting member of the Federal Open Market Committee (FOMC) though so we have to pay attention.

Philadelphia Fed President Patrick Harker, a non-voter, will appear at the Chief Executives Organization’s CEO Financial Seminar 2018 in New York. The title of the speech is “A Conversation with Pat Harker.” He hasn’t spoken very much recently, and when he did speak it was on topics not related to the market, so it’ll be interesting to hear his views. Harker will be speaking again on Thursday 24th of May on the labor market and technology.


The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
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21 / 05 / 2018 | Market News

Why do oil prices surge

Back in 2008 the price of crude oil reached $100 per barrel. The global financial crisis that started in the same year in the United States (US) spread quickly across the globe. The impact of the financial crisis, for which many economists believe that it was the worst since the Great Depression, forced governments to bail out large financial institutions and implement new monetary and fiscal policies to prevent a possible collapse of the world financial system. Economies worldwide slowed during this period, as credit tightened, and international trade declined.

Because of the economic slowdown, the price of crude oil started to decline reaching $40 per barrel in 2016. As the global economy seems to be recovering in recent years, the demand for oil is rising in response to the increased rate of economic growth. On May 20th 2018, the price of Brent crude oil stood at $78.51 per barrel and the price of West Texas Intermediate (WTI) crude oil at $71.37 per barrel. Oil prices have jumped sending the prices of every oil product such as gasoline higher. 

Venezuela and Iran weigh on oil prices

The US President Donald Trump decided some days ago to exercise the get-out clause in the Iran nuclear agreement and reinstitute sanctions that had been terminated by the previous US President Barack Obama. Economists suggest that the Iranian oil output will be reduced from 3.8mn barrels per day to 3.4mn because of the US-Iran deal’s termination. 

Venezuela which is another major oil producing country is facing large financial problems. Inflation in the Latin American country has soared, and the government of Venezuela has been forced to cut back the oil production as oil workers are unpaid and the much-needed investments in oil fields are not done. Analysts at Barclays estimate that Venezuela’s output in 2018 will be some one million barrels per day less than last year’s 2.3 million barrels per day. 

Experts comment on oil prices

A Goldman Sachs report, released on May 9th 2018, forecast that the price of Brent crude oil could reach $82.50 per barrel during the summer months of 2018. Goldman Sachs’ experts said that increased geopolitical tensions in the Middle East, plunging Venezuelan production, and now the U.S. withdrawal from the Iran nuclear deal could push oil prices higher. They also commented that the probable cutback in the Iranian crude oil supply could push up oil prices by around $6.20 per barrel, adding that ‘such elevated oil geopolitical risks exacerbate the upside risks to Brent forecasts and reinforce our view that oil price volatility will continue to increase.’

The International Energy Agency (IEA) announced on May 20th 2018 that it is ready to act if necessary to ensure that markets remain well supplied. On May 12th 2018, the IEA had commented that the restoration of sanctions on Iran may have implications for the oil market balance. ‘The IEA is discussing and will discuss oil market conditions and outlooks with relevant stakeholders, both oil consumers and producers. For now, the rapidly changing geopolitical landscape will move the attention away from stocks as producers and consumers consider how to limit volatility in the oil market,’ said the IEA’s Executive Director Keisuke Sadamori when he was asked by reporters about the current oil market situation. 

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Trading Forex and CFDs, which are leveraged products, are high risk investments and puts your capital at risk. You may sustain a loss of some or all of your invested capital. Only speculate with money you can afford to lose.
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18 / 05 / 2018 | Technical Analysis

Technical Analysis 18.05.2018 – AUD/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 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 (83.05). One of the previous maximums of Chikou Span line is expected to be a resistance level (83.55). 

Let's look at the four-hour chart. Tenkan-sen line is below Kijun-sen, the lines are horizontal . Confirmative line Chikou Span has crossed the price chart from below, current cloud is ascending. The instrument has entered the cloud. The closest support level is the lower border of the cloud (82.25). The closest resistance level is the lower border of the cloud (83.95).



The Technical Analysis is provided by Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
 

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18 / 05 / 2018 | Market News

Fundamental Analysis 18.05.2018 – Market Outlook

Market Recap

Rising Treasury yields exerted their influence on the FX market and the dollar rose.

The US data was good – following the better-than-expected Empire State manufacturing index earlier in the week, the Philadelphia (Philly) Federal Reserve System (Fed) index unexpectedly rose 11.2 points (a 2.2-point decline was expected) to the highest level in a year. New orders surged, which implies that manufacturing will remain strong in coming months, and the prices received index rose to the highest level since 1989, implying upwards pressure on inflation. The Conference Board’s leading index rose for the seventh consecutive month and the four-week average of initial jobless claims edged down a new low. While higher yields weighed on the S&P 500, which closed slightly lower, the Russell 2000 index of small-cap stocks hit a record high.

Nonetheless, looking at the timing of the Treasury market moves, they don’t seem to have been so directly influenced by the data – rather, it appears that yields started to drift higher around 2 PM New York time. We’ve seen similar action many times in the last few week.

Given the rise in Treasury yields and USD/JPY’s sensitivity to US interest rates, it’s no surprise that JPY was the biggest loser on the day. The yen weakened steadily throughout the day, helped this morning by the announcement of a larger-than-expected slowdown in Japan’s inflation rate. JPY is expected to continue to weaken as US yields over 3% prove attractive to Japanese investors. US 5-year nominal yields are now higher than the 10-year yields of any other G10 currency.


CAD was lower as the US administration failed to meet yesterday’s Thursday 17th of May 2018 deadline to notify Congress about a North American Free Trade Agreement (NAFTA) agreement. Now any agreement will have to be approved by the new Congress that’s seated in January 2019, if indeed they can reach agreement at all. With a Mexican presidential election coming up on the 1st of July 2018, it  will be increasingly difficult to reach an agreement. US Trade Representative Robert Nighthizer said the countries are “nowhere near close to a deal.” With the Consumer Price Index (CPI) expected to remain steady today (see below), we could see further weakness in CAD.

The Italy situation seems to be clearing up a bit. Reports surfaced yesterday that the final agreement between the League and 5 Star Movement wouldn’t include asking the European Central Bank (ECB) for debt relief to Italy nor would it call for Italy to leave the euro. But a larger fiscal deficit and greater bond issuance does seem likely. The League’s leader said Monday 21st of May 2018  would be the “make or break” day for the discussions between the two parties. Italian spreads over Bunds fell by 4 bps, but this hardly makes a dent in the 20 bp jump on Wednesday 16th of May 2018, implying that the market isn’t totally reassured yet.

Today’s market

The day starts with a speech by Cleveland Fed President Loretta Mester on macroprudential and monetary policy at an European Central Bank (ECB) conference on the topic. She’s a voting member of the Federal Open Market Committeee (FOMC) and one of the more hawkish members. She just spoke a few days ago and said that a) inflation hadn’t yet reached the 2% target on a sustained basis (even though it has actually reached the target), and b) it might be necessary for rates ultimately to rise higher than she had previously anticipated.

After that, it’s pretty much Canada Day. These are the last major Canadian indicators before the Bank of Canada meeting on the 30th of May 2018 and so will be closely scrutinized.

Canadian retail sales are forecast to grow more slowly than in the previous month, but still at a pace above the recent trend. The figures are expected to be taken as encouraging and could therefore be modestly positive for CAD. 


 

However, there’s little doubt that the Canadian CPI, which is released at the same time, will be the more important indicator. Canada has a bewildering number of ways of measuring inflation, but almost all of them are expected to show the rate of inflation staying the same (except for the “CPI core – trim yoy%”, which is forecast to accelerate to 2.1% yoy from 2.0%). In theory no change in inflation should mean no change in currency expectations either, but what we saw last week with the US CPI was that an unchanged CPI can lead to a fall in the currency which could be negative for CAD.



The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
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18 / 05 / 2018 | Market News

How to improve your trading productivity

Trading speculative derivatives such as Contract for Differences (CFDs) is the activity of buying and selling financial instruments with the intent of profiting from price movements in the underlying asset. Since traders are not owners of the underlying asset, they are just speculating on the price movements of the underlying asset. Therefore, traders could benefit from rising markets as well as from falling ones. However, trading also involves significant amount of risk of loss to your invested capital. 

The leveraged nature of the financial instruments means that the effects of small movements in prices are magnified and can have large impacts on the value of trade positions, both in respect of profits made and losses incurred. The higher the leverage rate, the higher the potential of making profits and the higher the risk of experiencing significant losses. The world of trading is competitive. Possible measures for mitigating the risks of loss on trading accounts, are for example actively monitoring your trading accounts to ensure there is always available margin on their accounts, stay updated with market news, utilise education material to enhance your knowledge of trading CFD products and first practice trading on demo accounts rather than live trading accounts.

Traders need to be productive even if sometimes trading can be a tiring process because of the long hours needed and the influx of information. However, there are ways with which traders could improve their productivity and expand their range of knowledge. This article will suggest some ways in which investors could improve their trading skills. 

Performing in-depth market analysis

Being a trader without learning about the market updates is a quite difficult task. The lack of knowledge about what is going on in the financial markets could be a serious handicap in the world of trading. Many traders are devoting part of their capital to pay for financial news from various professional research or financial news agencies and providers in order to remain up to date at all times. 

Seasoned traders suggest that making decisions related to trading requires from traders to accurately evaluate all influencing factors beforehand. This could be a difficult task mainly because of the limited time available but the more experienced traders insist that achieving the desired targets, an in-depth market research should be carried out. 

Paper trading

The expression 'paper trading' may sound unusual but some traders consider it to be a useful type of practice. Paper trading helps traders learn the secrets of trading. Paper trading is a concept that has to do with trading stocks with pretend money but doing it with real numbers in real time. The combination of the paper trading practice and the internet makes for a good educational package which could help in developing the traders' skills without taking any real money risk. Trading paper money also helps traders to test new ideas without incurring the kind of emotional trauma when real money is lost. 

Analysing new charts 

Technical traders use the price history of any asset, and the price patterns that are formed, as a basis for making trading decision and analysis.  The technical analysis is a technique that uses the price chart of an asset as a key component in forecasting where the price will head next. Chart patterns are a key tool in a technical trader's portfolio.

Seasoned traders suggest that a good practice for a trader could be picking, for example, five completely new charts of financial instruments they would like to trade and analyse them carefully. The trader who wants to practice his skills in this way could expand his range of knowledge regarding the financial instruments and later put the new skills in use while trading in real markets. 

The suggested strategies above are some of the ways in which some seasoned traders have improved their trading productivity, however traders and investors must be aware that there is never any guarantee of any trading technique or strategy to improve trading productivity, as there are many risk factors involved when trading speculative derivatives such as CFDs. Before making any investment decisions, you should be aware of the key risks involved by reading the Risk Disclosure document on our STO website. 

Trading with STO

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Trading Forex and Contracts for Difference (CFDs), which are leveraged products, are high risk investments and puts your capital at risk. You may sustain a loss of some or all of your invested capital. Only speculate with money you can afford to lose.
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17 / 05 / 2018 | Market News

Fundamental Analysis 17.05.2017 – Market Outlook

Market Recap

The day of the commodity currencies! AUD, CAD and NZD led the ranks. Meanwhile USD fell even though US interest rates continued to rise, hitting a new high for this economic cycle.

In contrast to Tuesday 15th of May 2018, the higher US yields didn’t derail the US stock market, which managed to close higher – possibly because of a better-than-expected US industrial production figures. Higher bond yields due to stronger economic activity are a different matter to higher bond yields because of higher inflation. Housing starts disappointed but the forward-looking permits were better than expected.

It looks like Italy’s problems are starting to have an effect on the markets. Not only are the two parties still struggling to reach agreement on forming a coalition, but one of the points they seem to be discussing is whether to ask the European Central Bank (ECB) for debt forgiveness. Greece was bad enough, but Italy is the largest bond market in Europe, with EUR 2.4tn in bonds outstanding. One politician said they are discussing an EUR 250bn write-off, although another politician denied it. They are also reported to be discussing the renegotiation of European treaties, reform of the Stability & Growth Pact, and a revision to Italy’s budget contribution. Italian yields jumped and most peripheral bond spreads ended the session at their wides for the day, aided by a “flight to quality” within the EU that saw 10yr Bund yields decline 4 bps.

However, German Chancellor Angela Merkel in effect rebutted these ideas. Noting that the ECB’s loose monetary policy won’t last forever, she called for more integration of the Eurozone economies, saying: “the global view of joint currency unions states that you need to have some kind of element of last resort.” This could be a hint of measures to be discussed at the EU summit on 28-29 June 2018.

Given the tumult in Europe and the rise in US yields, it’s surprising to me that USD weakened vs EUR. Especially, the UST/Bund yield spread is now the widest it’s been since the inception of the ECB. It is unlikely that this is a tenable situation, particularly since Bund yields are negative out to 5 years –  USD is expected to recover in short order.

 

The good performance of stock markets, plus the successful rollover of some Argentinian short-term notes sparked a general risk-on tone and a relief rally in emerging market currencies.

GBP gained after the Telegraph newspaper reported that the UK will tell the EU that it’s prepared to stay in the customs union beyond 2021. The question is though, will that be acceptable to the hard-core Leave faction in the Cabinet? It seems to be “Brexit-lite,” leaving the EU in name but not in reality, as remaining in the customs union also means adhering to various EU rules and regulations without having any say in their making. 

NZD was up after the government raised its forecsats for the budget surplus for the fiscal years out to 2020. AUD/NZD continued to rally nonetheless as Australia’s employment data beat expectations – total employment was more or less in line with expectations (+22.6k vs +20.0k expected), but the mix was excellent – full-time jobs +32.7k, part-time -10.0k. The unemployment rate rose but that was due to a rise in the participation rate, which is a good sign. Given the longer-term headwinds to NZD, AUD/NZD could continue to rally somewhat.

Today’s market

Not much on the schedule today. Only one minor bit of data during the European and US days.

Retiring ECB Vice President Vitor Constancio will be making closing remarks at an ECB colloquium being held in his honor, then 1 ½ hours later he will make the opening address at the third annual ECB macroprudential policy and research conference. 

The Philadelphia Federal Reserve System (Fed) survey is expected to be down slightly but to remain firmly in expansionary territory. This compares with Tuesday’s 15th of May 2018 Empire State index, which had a similar forecast but wound up rising notably.

Bank of England Chief Economist Andy Haldane will give the closing remarks at a conference on economic measurement. The conference will cover all aspects of the measurement and use of economic statistics. Haldane could say something interesting about the bias in statistics and how the Bank of England adjusts for it, or which statistics it’s looking at particularly closely, which could be useful. 

Dallas Fed President Robert Kaplan (non-voter) will speak in a moderated Q&A session. He just spoke on Tuesday 15th of May, so nothing much is expected from him today.

Overnight we get Japan’s national Consumer Price index (CPI). Inflation is forecast to fall back notably, as it did with the Tokyo measure, which comes out about a week earlier (the purple line in the graph). The slowdown in core inflation is likely to be particularly disappointing for the Bank of Japan.



The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.

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17 / 05 / 2018 | Technical Analysis

Technical Analysis 17.05.2018 – EUR/JPY: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is below Kijun-sen, the red line is directed downwards, while the blue one remains horizontal. Confirmative line Chikou Span has crossed 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 (129.96). The closest resistance level is the lower border of the cloud (130.82).



On the daily chart Tenkan-sen line is below Kijun-sen, the red line is directed downwards, while the blue one remains horizontal. Confirmative line Chikou Span is below the price chart, current cloud is 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 (129.56). The closest resistance level is the upper border of the cloud (131.02).



The Technical Analysis is provided by Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
 
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