29 / 06 / 2018 | Technikai Elemzés

Technical Analysis 29.06.2018 – 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 is crossing the price chart from below, current cloud is ascending. The instrument is trading between Tenkan-sen and Kijun-sen lines. Borders of the cloud serve as the closest support (127.70) and resistance (127.85) levels


On the daily chart Tenkan-sen line is above Kijun-sen, the lines are horizontal . Confirmative line Chikou Span is approaching the price chart from below, current cloud is descending. The instrument has been corrected to the Tenkan-sen line. The closest support level is the lower border of the cloud (127.59). One of the previous maximums of Chikou Span line is expected to be a resistance level (128.45).


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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29 / 06 / 2018 | Piaci Hírek

Fundamental Analysis 29.06.2018 – Market Outlook

EUR jump after EU leaders reached an agreement on how to deal with migrants. The countries agreed to set up “controlled centers” to process migrants' asylum claims. Those deemed eligible for asylum would then be distributed among member states that offer to take migrants. The key point is that it’s all voluntary:  countries are required neither to set up these centers nor to take any migrants. That’s a major concession to the Eastern European countries. The EU will also look into establishing "regional disembarkation platforms" to process migrants outside of Europe, a major demand of several countries, including Austria, which takes over the EU Presidency. The agreement takes a lot of the pressure off not just the EU as a whole but specifically off German Chancellor Angela Merkel, who was under intense pressure from her interior minister to do something to stem migration. The agreement probably means no further worries about her coalition falling apart. It could therefore be positive for the euro.

CAD jumped as oil gained further and the odds of a rate hike at the 11 July Bank of Canada meeting rose sharply. The market now sees a 68% chance, up from 55% at the beginning of the week. Following a speech yesterday, Bank of Canada (BoC) Governor Stephen Poloz told reporters expects to continue raising interest rates in spite of mounting trade tensions because inflation has alrady hit the BoC’s 2% target. This is Poloz’ last public appearance before the meeting and so it’s his last word.


“We’ve said clearly that, given where the economy is, we’re in a situation where the economy will warrant higher interest rates,” he said, while also emphasizing that this would be a “gradual process.” He also played down the impact of trade threats. “We’re data dependent, not headline dependent,” Poloz said. “We’re not going to make policy on the basis of political rhetoric or any of that.” The conclusion is unambiguous:  Canada is likely to continue hiking rates. This could support CAD going forward.


How high could Canadian rates go? A simple Taylor Rule estimate would put them at 4.75%, vs the current 1.25% level. That would mean 350 bps of tightening to come – quite a change! But as you can see, the Taylor Rule has pretty consistently given too high an estimate of actual BoC rates.


The swaps market is pricing in about 82 bps of further tightening – two rate hikes and a 50-50 chance of a third.


By this way of calculation, Canada has among the most scope for tightening over the next three years among the major currencies – this should keep the currency underpinned, so long as oil holds up and the North American Free Trade Agreement (NAFTA) dispute doesn’t derail the economy.


Meanwhile, JPY was the worst performing major currency, proving that Japanese economic statistics have almost no impact on the currency market at all. The Tokyo Consumer Price Index (CPI) beat expectations, both at the headline level (+0.6% yoy vs +0.4% expected, +0.4% previous) and core (+0.4% yoy, +0.3% expected, +0.2% previous). The job-offers-to-applicants ratio unexpectedly rose and the unemployment rate unexpectedly fell to a 26-year low. All those figures should boost hopes that wage rises will accelerate and inflation will pick up, which should be good for the currency. Moreover, industrial production fell less than expected. Finally, the Bank of Japan reduced its bond purchases for the third time this month as it continued its “stealth taper,” another move that could be positive for the currency.

Nonetheless, JPY fell sharply. Nor can the decline be attributed solely to the usual JPY-stocks correlation, because the stock market was up only 0.25%. It shows that JPY is dominated nowadays by overall risk sentiment, not Japanese economics. As you can see from the graph, although USD/JPY (the orange line) was moving higher already along with the improved tone in global risk, it jumped up along with EUR/USD (the white line) when the news about the EU agreement on migrants was announced, even though of course that has nothing to do with Japan.
USD was also lower despite a higher stock market and higher US bond yields.

Today’s market

Today is the second day of the EU Summit. With the talks on migrants out of the way, It is expected to focus more about Brexit. At a working dinner last night, UK Prime Minister (PM) Theresa May argued that the EU’s rules on sharing information with countries outside the bloc would prevent Britain from working with the EU on security. EU members see complaints like this as just part of Britain’s attempt to pick and choose which parts of Europe it wants to belong to, and are generally met with disdain. EU leaders arriving at the meeting yesterday Thursday 28th of June 2018 had nothing good to say about Britain:  Ireland Prime Minister (PM) Leo Varadkar said it was “unlikely but possible” that the two sides would be unable to reach an agreement on post-Brexit relations and Britain would just crash out of the EU.

As for the data, we start off with German unemployment. The data are expected to show a continued decline in unemployment, however at a steadily declining pace and well below trend. Meanwhile the unemployment rate (or claims rate, in Germany) is forecast to be unchanged. In short, it’s forecast to show the improvement in the employment situation is gradually tapering off. That’s not a good sign when the incumbent government is already struggling. Moreover, there’s nothing to make people fear migrants more than a tepid job market. This could be negative for EUR.



Bank of England mortgage approvals are expected to be down slightly (-0.4%). However, UK Finance mortgage approvals, which were released on Tuesday 26th of June 2018, showed a stronger-than-expected rise of 2.4% (+0.3% expected). The two series move in the same direction 85% of the time, so we could get a positive surprise that might be positive for GBP.


The third and final revision of UK Q1 Gross Domestic Product (GDP) will be released. No change is expected.

EU consumer prices (CPI) are forecast to rise at a slightly faster pace at the headline level, but a slightly slower pace at the core level. Which one matters? Which one does the European Central Bank (ECB) use? Just Tuesday 26th of June 2018, the ECB published a report, “Measures of underlying inflation for the euro area.” It noted that the ECB’s formal target was stated in terms of headline, but unfortunately they also monitor a wide number of other measures (see table from the report).


In fact, when we do a regression analysis of the surprise in the data against the subsequent movement of EUR/USD, we find that neither series is particularly significant, and even worse, the sign for the headline figure is backwards – that is, EUR/USD tends to rise when the headline figure surprises on the downside. This doesn’t make sense. The sign for the core figure is at least correct and EUR/USD tends to rise (i.e, the euro strengthens) when inflation is faster than expected.


The lack of a significant market reaction may be because by the time the EU-wide CPI is released, we’ve already gotten the German, French Spanish and Italian CPIs. With these four, we can predict the EU-wide CPI with slightly over 99% accuracy. Thus it may not matter at all by the time the figure is released.

Next out is a more significant inflation figure – probably the most important figure of the week:  the US personal consumption expenditure (PCE) deflators. As the ECB’s table shows, this – not CPI – is what the Federal Reserve System (Fed) uses as an inflation target. The table says the Fed uses the “total PCE deflator,” but it’s widely assumed that they use the core measure. In any event, the headline figure is forecast to vault past the 2% target, while the core measure is expected to inch its way closer to it. Given that the Fed has more than achieved its employment target, it only has to hit its inflation target to declare “misssion accomplished.” That would pave the way for further rate hikes back to a theoretically neutral level and therefore could be positive for the dollar.


The US personal income and personal spending figures, which grab most of the headlines, aren’t as significant for the FX market as the PCE deflators, which come out at the same time. In any event, both incomes and spending are expected to be up a solid 0.4% mom, which should enable consumer activity to expand steadily this quarter.


The Bank of Canada’s quarterly business survey does have a number attached to it – the “business outlook indicator,” as well as a variety of other indices – but there are no forecasts available. This important survey is like a cross between the Fed’s Beige Book and Japan’s tankan.

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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29 / 06 / 2018 | Piaci Hírek

The 3 types of traders

Markets have changed radically in recent years with the introduction of new products and trading rules. Despite the market evolution, some basic principles have remained the same and can be easily identified in all aspects of financial activities. The market laws of supply and demand which shape prices are still there, affecting the way the market functions. 

However, the evolution of the markets has led to the creation of certain categories in which traders have split according to their needs, strategies and targets. This article aims at giving you a general description of each trader segment and may help you decide which would match your style and needs. 

Day Trader

According to economists, “day trading” is the kind of trading in which individuals are buying and selling financial instruments, such as stocks, currencies, options within the same trading day with the goal of profiting from small price fluctuations. Day trading involves significant risks which the potential trader should learn about and build a suitable strategy that will allow him to avoid the consequences. 

Day traders who would like to gain from their trading strategies should have a thorough knowledge of the market. Day trading is a speedy process and the amount of money being used for buying shares can be quite large. That’s why day traders should know which stocks to trade in, when to enter a trade and when to exit it. Another factor that plays an important role in day trading as well as in any type of trading is the knowledge of using online trading tools and choosing the right online trading platform which has all the necessary requirements. 

Day trading involves making profit by differentiating between bid prices and asking prices. People who indulge in day trading aim for a speedy turnover rate on one or multiple trades. This tactic allows them to gain more profit from small swings in asset values if the market moves in their favour. If the market conditions are against them, it is possible that they will record losses, taking a toll on their portfolio. 

Swing Trader

Swing trading is among the most popular forms of trading, used by traders who search for medium-term opportunities and are familiar with the various forms of technical analysis. Swing traders use technical analysis to look for stocks with short-term price momentum. The main difference of day trading with swing trading is that day trading positions last less than 24 hours while swing trading positions often last from two to seven days, and on some occasions, may last as long as 14 days. 

The swing traders’ objective is to identify a trend and attempt to gain with swing trading within that trend. For this reason, knowing how to use the technical analysis is imperative for swing traders since they have to study and analyse the fluctuations of an instrument’s price. Understanding the advantages of the data coming from the technical analysis, swing traders can execute the appropriate trading strategy. 

Although swing traders often go with the main trend of an instrument, some of them prefer to go against it and trade the counter trend instead. This trading strategy is called “fading”. Fading is a contrarian trading strategy used to trade against the prevailing trend. This strategy involves increased risk so inexperienced traders and those starting out should carefully consider the risks involved and investigate all other types of trading strategies before proceeding with fading. 

Position Trader

Position traders are the complete opposite of day traders. In contrary with day traders whose positions last for less than 24 hours, position traders hold positions with a long-term target. This time period could be weeks, months or even years. While day and swing traders aim to benefit from short fluctuations on the instruments’ prices, position traders give less attention to news updates that could affect prices short-term. 

Position traders often use a mix of technical and fundamental analysis to form their trading strategies and have the necessary time to perform thorough evaluations of the instruments and the assets they want to trade with. Position traders also tend to keep a much smaller number of trades in their portfolio when compared with day and swing traders. 

STO and traders

STO offers its clients 5 diverse account types to trade with. STO provides traders with educational material which will walk them through multiple solutions, depending on each trading strategy. STO is the trading name of AFX Markets Ltd, licensed and regulated by the FCA (Financial Conduct Authority), and AFX Capital Markets Ltd licensed and regulated by the CySEC (Cyprus Securities and Exchange Commission). 

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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28 / 06 / 2018 | Technikai Elemzés

Technical Analysis 28.06.2018 – AUD/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 is approaching the price chart from below, 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 (80.80). The closest resistance level is Kijun-sen line (81.30).


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 (80.60). The closest resistance level is Tenkan-sen line (81.50).


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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28 / 06 / 2018 | Piaci Hírek

Fundamental Analysis 28.06.2018 – Market Outlook

Is USD a risk-on or risk-off currency? On Monday 25th of June 2018 it was the best-performing G10 currency as risk-taking sentiment returned, but yesterday Wednesday 27th of June it was also the best-performing currency even though risk-taking sentiment declined notably.

In fact there seems to be little correlation between the dollar and risk sentiment, as gauged by the S&P 500. The correlation in changes between the two this year is -0.16%, meaning that in general, when the S&P 500 rises, the DXY index falls slightly – but very low correlation. As you can see from the scatter graph below, there’s little connection, as indicated by the R2 of 0.027, which means there’s little correlation between the two. They’ve moved in the same direction 50.8% of the time this year, which is exactly what you would expect if the correlation were random. 



Furthermore, while the US economic indicators were generally better than expected on Monday 25th of June 2018, they were mixed on Tuesday 26th of June 2018. The headline durable goods orders figure fell less than expected but excluding transportation, it was much worse than expected (-0.3% vs +0.5% expected) and core capital goods orders fell instead of rising as expected. Pending home sales were disappointing (-0.5% mom vs +0.5% expected).

The big surprise though was a narrowing in the US trade deficit as exports rose sharply while import growth slowed. The deficit narrowed to -$64.8bn, whereas it had been expected to widen to -$69.0bn. The previous month was revised to -$67.3bn from the initial -$68.2bn. Perhaps under the current administration, trade is having an outsize impact on FX.




It appears that the message from last week’s Commitment of Traders report was correct:  the market has capitulated and is bullish USD.

Both Bank of England Governor John Carney and Bank of Canada Governor Stephen Poloz echoed Federal Reserve Systems (Fed) Chair Jerome Powell’s recent comments highlighting the risks to the economy from trade tensions. Governor Carney noted that, “trade tensions have intensified…the question is the extent to which these measures start to affect business confidence…it’s one of the potential triggers for a broader risk-off attitude or adjustment to risk appetite in financial markets.” Governor Poloz stressed that the bank “cannot mechanically follow the rate path provided by our models because there is simply too much uncertainty in the world…these include the degree to which uncertainty about trade policy is holding back business investment…we expect these issues to figure prominently in our upcoming deliberations.” The message is clear:  trade is no longer affecting FX just via stock markets but directly through expectations for monetary policy. The comments suggest that measures of business confidence will have more weight in monetary policy deliberations than before and will therefore be more important for FX market participants to watch.

NZD fell further after what was interpreted as a modestly dovish Reserve Bank of New Zealand meeting. While the main points and the forward guidance were basically the same, some of the details had a dovish tilt, for example when Governor Robert D. Orr said that the weak Q1 growth “implies marginally more spare capacity in the economy than we anticipated,” and that the fiscal impulse would be “also slightly lower and later than anticipated." He also referred to the trade tensions. With the currency having been beaten up so much recently, it could be in for a modest recovery on short-covering if risk sentiment returns.

EU Summit: migration, Brexit, trade and other topics

The two-day EU Summit starts today. The summit will take up a number of difficult topics:
  • The hardest one is probably migration. The question of migrants and asylum in Europe has always been a source of disagreement among the EU countries, but now it’s an even bigger crisis as German Chancellor Angela Merkel’s coalition is starting to fall apart over the issue. There was a “mini-summit” on Sunday 24th of June 2018 to prepare for today’s discussions, but that event ended in disarray as the new Italian government demanded a total rethink of the EU’s rules for dealing with migrants. If this meeting can’t come up with a position that’s acceptable to all sides in Germany, her coalition may crumble. That would probably mean new elections in Germany in a few months. The increased political uncertainty would be negative for the euro.
  • As for Brexit, the EU’s view is that there’s not much new to discuss, that Britain still hasn’t put forward a viable position for the two sides’ relationship after Brexit. There probably won’t be much disagreement within the EU side about the issue, but the conclusion is likely to be negative for Britain and the pound, in my view.
  • The summit will also discuss trade with the US. The EU leaders are likely to take a hard stance in opposition to the US’ talk of more tariffs, with the result of a further “risk off” mood pushing the dollar down and JPY and CHF up.
  • Finally, they will discuss measures to strengthen the Eurozone’s fiscal stability, such as a common Eurozone budget to fund investment programs and provide financial support for countries facing recession; a banking union; and transforming the European Stability Mechanism(ESM) into something resembling a European Monetary Fund (EMF) to better address future crises.
Other indicators and events
Getting back to today’s indicators, German Consumer Price Index (CPI) (to be specific, the HICP, or harmonized index of consumer prices) is expected to rise only modestly on a mom basis, while yoy growth is forecast to decelerate. Nonetheless the market expects tomorrow’s EU-wide CPI to accelerate somewhat (although core CPI is forecast to slow). Since 2009 the German HICP and EU-wide HICP have moved in the same direction 73% of the time, but that still leaves 27% of the time that they don’t – meaning it is possible for the former to slow and the latter to pick up. Nonetheless, a slowdown in German inflation would be seen as a warning for the rest of Europe and could be negative for the euro.



The third revision of US 2Q Gross Domestic Product (GDP) is expected to result in the figure remaining unchanged. However, the the Quarterly Services Survey (QSS) indicated that there was less spending on services than previously assumed. That could lead to a downward revision, which would be negative for USD if indeed it does happen. But as the graph shows, the third revision of US GDP hasn’t shown much change in the last several years. Since 2015 the average of the absolute values of the revisions has been about 25 bps. Still, a 25 bps downward revision (actually it would be 20 or 30 bps) would be enough to move USD, at least temporarily.




Bank of England Chief economist Andy Haldane will deliver the Academy of Social Sciences Annual Lecture on productivity. Haldane was third person who joined the two regular hawks in dissenting at the latest Bank of England (BoE) Monetary Policy Committee meeting. The speech will give him an opportunity to explain his dissent. That could be positive for GBP, although with the EU Summit starting today, politics may outweigh economics for GBP. Sluggish productivity growth has been a major concern for the BoE for some time, although the Eurostat data suggests Britain’s productivity growth is no worse than Germany or France, and much better than Italy’s.



Overnight there are a number of indicators out for Japan. The most important of these is the Tokyo CPI. Inflation is expected to remain sluggish, with the headline rate of change forecast to stay at the previous month’s rate, while core CPI is forecast to perk up but by an insignificant degree. That news could be negative for JPY if indeed anyone cares any more about inflation – even the Bank of Japan seems to have given up hope that it will ever return to the 2% target.




Japan’s unemployment rate and job-offers-to-applicants ratio are both expected to remain unchanged.
Australia’s private sector credit is expected to rise at the same mom pace as in the month before, while the yoy rate is forecast to be almost the same. In that case, we can expect an impact on AUD only if the actual deviates notably from the forecast. This could be neutral for AUD.



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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28 / 06 / 2018 | Piaci Hírek

UK GDP growth and Eurozone CPI inflation in the spotlight

Friday 29th June 2018 may be the last day of the week, but the scheduled economic data releases are going to catch the market analysts’ attention. Data coming from Great Britain and the European Union is expected to make the headlines and likely create market volatility. The British Pound and the Euro are among the most traded currencies in the global foreign exchange market with every economic data release playing a role in their values’ fluctuations. 

United Kingdom

On June 29th 2018, the Office for National Statistics (ONS) will publish data regarding the UK’s Growth Domestic Product (GDP) growth during the first quarter of 2018 (Q1 2018) and the number of mortgage approvals in May 2018. Market analysts, polled by Reuters, suggest that the UK’s GDP grew by 1.2%, on an annualised basis, in the first quarter of 2018 matching the reading of the fourth quarter of 2017. On a quarter-to-quarter basis, the UK’s GDP is likely to have expanded by 0.1% matching again the figure for the last quarter of 2017. 

A report by the National Institute of Economic and Social Research (NIESR), published on June 11th 2018, said that “our monthly estimates of GDP suggest that output grew by 0.2% in the three months ending in May 2018 following growth of 0.1% in the three months ending in April 2018.” Analysts at NIESR noted that “economic growth has slowed materially since the start of this year and it continues to remain weak. One reason for the sluggish growth is the disruption caused by severe weather in March 2018, particularly in the construction sector.” 

Another important data release is the one regarding the mortgage approvals in the UK during May 2018. According to the market analysts’ estimate mortgage approvals are likely to have increased to 62,528, a bit higher than April’s 2018 62,455 approvals. A report by Nationwide, released on June 27th 2018, showed that the house price growth in the UK fell in June 2018 to the lowest level recorded in the last five years. The Nationwide’s analysts reported that the annual house price growth slowed to 2% in June 2018 with the market dragged down by falling prices in the London area. 

Eurozone

On June 29th 2018, Eurostat which is the official statistical office of the European Union (EU) will publish the preliminary data regarding the Eurozone’s Consumer Price Inflation (CPI) in June 2018. Economists, based on the last economic data releases coming from the Euro-bloc, suggest that the Eurozone’s CPI inflation surged to 2% in June 2018, 0.1% higher than in May 2018. On the contrary, core inflation in the Eurozone is expected to have declined to 1.0% from 1.1% in May 2018. 

Mario Draghi, the head of the European Central Bank (ECB), told reporters in Sintra, Portugal on June 20th 2018 that the forces holding back wages in the euro zone are gradually waning and the ECB is confident that inflation will continue to rise back towards its objective of almost 2%. The Italian president of the ECB noted that factors holding back inflation such as labour market slack, low productivity are gradually reducing their effect on the economy. 

Trading the British Pound and the Euro on STO

STO clients can trade with more than 30 major, exotic and minor currency pairs on one of the most advanced online trading platforms in the market. STO provides its clients with all the necessary educational material such as webinars to help them with preparing a suitable trading strategy. 

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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27 / 06 / 2018 | Technikai Elemzés

Technical Analysis 27.06.2018 – EUR/JPY: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is above Kijun-sen, the red line is directed downwards, while the blue one remains horizontal. Confirmative line Chikou Span is above the price chart, current cloud is descending. The instrument has entered the cloud. The closest support level is the lower border of the cloud (127.80). The closest resistance level is the lower border of the cloud (128.51).


On the daily chart Tenkan-sen and Kijun-sen lines have merged, both lines are directed downwards. Confirmative line Chikou Span is below the price chart, current cloud is descending. The instrument has broken through Tenkan-sen and Kijun-sen lines. One of the previous minimums of Chikou Span line is expected to be a support level (126.79). The closest resistance level is the upper border of the cloud (129.18).



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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27 / 06 / 2018 | Piaci Hírek

Economists focus on US GDP data and RBNZ's interest rate decision

On Thursday 28th June 2018, two economic data releases coming from the United States (US) and New Zealand may create market volatility. The day is going to start with the Reserve Bank of New Zealand’s (RBNZ) monetary policy meeting and decision on interest rates. Later in the evening, the US Bureau of Economic Analysis (BEA) will publish data regarding the US Gross Domestic Product (GDP). 

US GDP in Q1 2018

Market analysts will be expecting to scrutinize the report regarding the US GDP growth in the first quarter of 2018 (Q1 2018), released by the US Bureau of Economic Analysis (BEA). This will be the third estimate published by the US BEA. The GDP shows the monetary value of all the goods, services and structures produced within a country’s economy in a given period of time. The GDP reading is an indicator of market activity because it shows the pace at which a country’s economy is expanding or shrinking. In general, a high reading could help the US Dollar’s value surge while a low reading could be negative for the US currency. 

The consensus among financial analysts, polled by the Wall Street Journal (WSJ) on June 25th 2018, is that the US GDP grew by 2.2% in Q1 2018, on an annualised basis. The 2.2% GDP growth rate was revised lower from the initial estimate of 2.3% which was also a significant slowdown from the 2.9% GDP growth rate recorded in the fourth quarter of 2017 (Q4 2017). The third US GDP Q1 2018 estimate is expected to reveal whether consumer spending and business investment were stronger than last month’s forecast. Economists predict that the economy’s growth will accelerate as the year progresses and reach more than 3% which is a figure achieved twice during the last four quarters. 

On May 30th 2018, the US BEA had released the second estimate for the GDP growth during the Q1 2018. In the report the BEA’s analysts had noted that “the per cent change in real GDP was revised down 0.1 percentage point from the advance estimate, primarily reflecting downward revisions to private inventory investment, residential fixed investment, and exports that were partly offset by an upward revision to non-residential fixed investment.”

RBNZ decides on interest rates

On June 28th 2018, the New Zealand’s central bank governing council will convene to decide and announce its decision on interest rates. The majority of economists, polled by Reuters on June 24th 2018, forecast that the RBNZ’s board will keep the benchmark interest rate unchanged at 1.75%. It should be noted that the RBNZ has maintained its Official Cash Rate (OCR) stable at the 1.75% record low in the last 20 consecutive months. The same Reuters poll showed that 8 out of 14 economists questioned suggested that the RBNZ will consider lifting the rate during the third quarter of 2019 (Q3 2019). 

Economists at ANZ (Australia and New Zealand) Bank wrote in their report published on June 21st  2018 that they expect the RBNZ to keep rates unchanged, adding that “ A clear, consistent message will be retained: the RBNZ will remain cautious until inflation shows consistent signs of life. Developments since the June 2018 monetary policy meeting have been negative on balance. The RBNZ will maintain its wait-and-see approach, even as inflation rises little by little over the coming year. After two false starts this cycle, it will want to be sure that inflation is broad-based and likely to be sustained before an interest rate increase will be on the table.”

Westpac’s financial analysts seem to agree with their counterparts at ANZ. In a report, released on June 22nd 2018, they note that “we expect the RBNZ to repeat its main message that the OCR is expected to remain on hold for a long while, but the timing and direction of the next move will depend on how the economy evolves. The RBNZ is keen to avoid formulaic communications and might chop and change its wording even if its intentions have not changed.”

Trade the US Dollar and New Zealand Dollar on STO

The US Dollar against the Euro and the British Pound, as well as the New Zealand Dollar against the US Dollar and the Euro, are just some of the currency pairs that you can trade with on the STO online platform. STO provides its clients with all the necessary educational material such as webinars to help them with preparing a suitable trading strategy. 

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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26 / 06 / 2018 | Technikai Elemzés

Technical Analysis 26.06.2018 – CAD/CHF: Ichimoku clouds

Let's look at the four-hour 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 has been corrected to the Tenkan-sen line. One of the previous minimums of Chikou Span line is expected to be a support level (0.74115). The closest resistance level is Tenkan-sen line (0.74264).


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 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 (0.74174). The closest resistance level is Tenkan-sen line (0.75212).



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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25 / 06 / 2018 | Piaci Hírek

Fundamental Analysis 25.06.2018 – Market Outlook

Worsening trade dispute pushes JPY, CHF higher. The US Treasury department reportedly is planning to subject Chinese investments in sensitive US industries to greater scrutiny under a law that would declare these investments to be a threat to economic and national security. The ruling would threaten China’s “Made in China 2025” drive and could therefore lead to an all-out “trade war”. The news sent AUD lower, reducing the large gains that it made on Friday 22nd of June 2018, despite China’s measures to shore up growth (see below).

China cut its reserve requirement ratio (RRR), which means banks can lend out the money instead of keeping it in their reserve accounts. The CNY 700bn freed is going mostly (CNY 500bn) to debt-to-equity swaps, in which banks swap their loans in companies for equity. This allows troubled companies to reduce their leverage. The other CNY 200bn is aimed at loans to small businesses, which are entering into a difficult time as the US-China trade war heats up. Overall, the move is one of a series of recent policy actions taken to support growth as economic indicators suggest the economy is slowing just as the trade war heats up. The measures will take effect on 5 July 2018, one day before the first round of US tariffs on Chinese goods goes into effect.

It is a wonder how effective the move will be. It’s not clear whether the RRR is a leading indicator of bank lending, i.e. whether a cut in the ratio leads to more lending, or a lagging indicator, i.e. the authorities cut the ratio when bank lending slows. Nonetheless, it certainly won’t hurt.




It’s also not clear whether lending leads or lags industrial production or retail sales:




Organization of the Petroleum Exporting Countries (OPEC) raised their output ceiling, but by how much? The statement following Friday’s 22nd of June OPEC meeting didn’t set a specific production ceiling nor did it say which countries would increase their output by how much. A bit of calculation shows it implies an overall increase of around 624k barrels a day (b/d). Then on Saturday 23rd of June, the group met with major non-OPEC producers, such as Mexico, and endorsed a “nominal” increase of 1mn b/d, again without even saying how this would be split between OPEC and non-OPEC, much less among specific countries.
 
Saudi Arabian Energy Minister Khalid Al-Falih was the one who called it a “nominal” increase. Maybe “theoretical” would be a better term. That’s because 10 of the 14 OPEC countries (now 15 after Congo was admitted at this meeting) are already producing as much as they can, so they have no room to expand production. Furthermore, Venezuelan production is cratering as that country descends into chaos, and it’s not clear how much oil Iran will be able to sell as US sanctions begin to bite.
 
Since some countries are unable to raise their production, in practice this means that countries with greater capacity (specifically, Saudi Arabia) will raise their production to higher than their implied quotas. But since we don’t know how much they will raise output, we don’t know what the net effect will be.
 
Total OPEC production was 31.87mn b/d, according to the latest OPEC bulletin, making a 1mn b/d increase a 3.1% rise – if it actually happens.


 

In any event, the move was less than the market feared and oil rose sharply following the meeting. That wasn’t enough to support CAD however as trade fears increased. The market will now await Governor Stephen Poloz’ speech on Wednesday 27th of June 2018 for any clues about the 11th of June 2018 Bank of Canada meeting.
 
An emergency EU meeting Sunday 24th of June 2018, to discuss the migrant issue saw the divisions in Europe laid out in the open after Italy demanded that the EU totally change its policies for dealing with migrants who land on European shores. The meeting was an attempt to reach some agreement on this issue before Thursday’s 28th of June 2018 EU summit, but in fact it just showed how difficult if not impossible it will be to reach any agreement. The lack of any agreement puts more pressure on German Chancellor Angela Merkel’s coalition, which is threatening to come undone over the issue. It could potentially be very negative for EUR, although for the moment the threat of trade wars to the US is dominating the markets.

Why was NZD down so much while AUD was up? New Zealand sends 24% of its exports to China and 10% to the EU, while Australia sends 37% to China and 6% to the EU. So measures to boost growth in China help Australia more, while possible hits to growth in Europe affect New Zealand more. Also investors may be looking ahead to Thursday’s 28th of June 2018 Reserve Bank of New Zealand meeting, which is expected to do virtually nothing to boost growth or make the currency more attractive. Finally, investors may have noticed the shift in sentiment towards NZD that was evident in this weeks’ Commitment of Traders report (see below).

GBP was the worst performing major currency, presumably as the market focus shifts from last Thursday’s 21st of June 2018 Bank of England meeting to this Thursday’s 28th of June EU leaders summit and the ever-present Brexit problem.

Commitment of Traders (CoT) report shows the capitulation trade
Speculators threw in the towel and switched from net short USD to net long. The aggregate position of speculators in the futures contracts went from net short $7.1bn to net long $10.6bn. As you can see, the net EUR longs fell by more than half. Several other currencies flipped from net long currency to net short (thereby making for confusing percentage changes). JPY went from a net long 5,052 contracts to net short 35,562. GBP went from net long 10,969 to net short 19,206. NZD went from net long 7,006 to net short 15,940 – quite a dramatic move, as in one week they moved from being net long to being among the most short they’ve ever been. AUD net shorts more than doubled.






One exception was MXN, where net shorts fell considerably after the Mexican central bank raised interest rates. Curiously, CAD net shorts also fell slightly even as trade fears rose.

Both gold and silver longs were cut as precious metals fell.

Speculators reduced their net short US Treasury positions a week ago, but changed their mind this week and added to them. 



Today’s market
The day starts with Germany’s Ifo survey. All the indicators are expected to decline. By contrast, while the German manufacturing purchasing managers’ index (PMI) for June 2018 was lower, the services (and therefore composite) PMI was higher.


The Ifo expectations index has tracked the PMI fairly well, although the peaks and troughs tend to be sharper. This suggests that the downturn could continue even while the PMI turns up.


The Chicago Fed National Activity Index (CFNAI) is expected to be little changed, indicating that the US economy continued to grow at an above-trend pace in May. The CFNAI is different from the other regional Fed indices, which gauge conditions in that particular Fed district. The Chicago index is designed to gauge national economic activity and related inflationary pressure. 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. This could be positive for USD.


US new home sales are forecast to be 667k, a mom increase of 0.8%. This compares with the 0.4% decline in existing home sales that actually took place during the month. Pending home sales have been soft recently and higher mortgage rates have been discouraging new home buyers, but with the recent uptick in home building, sales of new homes could increase. This could be positive for USD.



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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