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FX Update: USD Starts Week With Its Back Against The Wall

The USD clearly has its back up against the wall to start the week, as EURUSD faces down the final relevant retracement level at 1.0840, USDJPY is teetering just under the Ichimoku daily cloud level and near local range lows, and the Antipodeans are storming strong to open the week’s trading after China’s PBOC declared a RR ration cut of 1 percent. I don’t quite understand why the market likes to react positively to the latter, as usually these kinds of central bank moves are rear-view moves due to economic weakness rather than signs that we should expect impending strength. This week, the focus will be on whether risk appetite can right itself after last week’s meltdown on Greece (and perhaps simply to take a breath after European bourses were on such an incredibly run since the beginning of the year). Note that we are seeing more significant contagion now in the EU periphery than we have seen in a long time, with the club med peripheral spreads spiking wider last week in sympathy with the spike in Greek yields. Portuguese 10-year debt is 190 basis points wide to Germany relative to about 130 bps at the start of quantitative easing in early March. Spain and Italy are at around 140 bps wide relative to about 90 bps at the start of QE.Chart: USDJPYUSDJPY is trading near key flat-line support in the 118.30/50 area and below the supportive offered by the Ichimoku daily cloud, which was crossed on Friday. A break of key support could lead to a bigger run lower – possibly toward the ultimate range supports near 115.00/50, but let’s take this one step at a time – as the pair has increasingly failed to move directionally over the last few months.


The G-10 rundownUSD: Has its back against the wall and no obviously important catalysts this week as next week’s Federal Open Market Committee meeting is shaping up to be a “we’re waiting for incoming data” affair.EUR: There seems to be a negative correlation here with risk appetite along the lines of a traditional carry trade behaviour, so more Greece worries might damage EURCHF further, but could ironically prove supportive of EURUSD. Watching 1.0840 as the last resistance line in the sand within the range toward 1.10. Eurogroup meeting up at the end of the week could provide next major Greece headlines.JPY: Inconsistent behaviour as it is caught in the middle of the pack relative to its G10 peers, but USDJPY has now pushed to key levels as we watch whether a break lower opens up for a try toward bigger range lows below 116.00.GBP: 1.5000 could not fall on Friday in GBPUSD and EURGBP may correlate with EURUSD, so not sure whether we get anything interesting from GBP this week relative to euro pairs, though we do have a couple of interesting event risks.CHF: EURCHF is on a grind lower that is likely correlated with sentiment on Greece/periphery – look for this to potentially continue toward the 1.0170 technical target and possibly to parity as long as this continues, but for the potential of very sharp rallies on any sudden parting of the clouds.AUD: Supported on the China RRR move, but we should see such cuts as a sign of worrying weakness in China, so it’s questionable how long this can support, particularly in an environment of weak risk appetite. Watching tonight’s Reserve Bank of Australia minutes for the latest guidance after the central bank failed to cut at the last meeting. Looking for eventual relative weakness versus especially the USD, but from here or not until from 0.7900 or even 0.8000? Bears may consider longer-term put options as discussed in this week’s FX 4 next week. CAD: We’ve seen a chunky correction after a capitulation through the bottom of the range with a decent bounce reversal on Friday – watching whether this blossoms into something bigger, and it is clear we’ll need an oil price rally to get anything to the upside going. Meanwhile, the Bank of Canada’s governor Poloz is out speaking today.NZD: Weak CPI failing to pressure the kiwi much as the focus is on the China RRR cut overnight. We’re nearing key zone of resistance in NZDUSD from 0.7700 toward the 200-day moving average as the preference remains one of looking for bearish reversals rather than the idea that we are about to launch any major new rally.SEK: Odd activity last week, as a Thursday meltdown yielded to a Friday melt-up. Let’s see if tomorrow’s employment data confirms this bullish reversal from Friday or whether we are merely in a treacherous, churning range.NOK: A much needed consolidation in EURNOK as we bounced from the recent lows, but that move changed the structure of the chart, putting us in bearish trending mode as long as we stay below the 8.50/55 line in the sand.

Economic Data Highlights

  • China lowered its Reserve Requirement Ratio to 18.5% from 19.5% previously
  • New Zealand Q1 CPI out at -0.3% QoQ and +0.1% YoY vs. -0.2%/+0.2% expected, respectively and vs. +0.8% YoY in Q4

Upcoming Economic Calendar Highlights (all times GMT)

  • Euro Zone Feb. Construction Output (09:00)
  • US Fed’s Dudley to Speak (12:40)
  • Euro Zone ECB’s Constancio to Speak (13:00)
  • Euro Zone ECB announces details of QE purchases (13:45)
  • Canada Bank of Canada’s Poloz to Speak (14:05)
  • Australia RBA Governor Stevens to Speak (17:00)
  • Australia RBA April Meeting minutes (01:30)

The Euro, NZD, Gold, WTI Oil and DAX

The EURUSD has encountered bearish momentum following the reports that Greece ordered local governments and enterprises to put cash into the central bank ahead of the likely default of an IMF payment on the 1st of May. While the EURUSD has enjoyed a modest recovery in recent weeks, the increased possibility of a Greece default could be the driver that pushes the Euro down to parity with the USD. Recent market commentary on the Eurozone has been more positive recently, with the ECB’s continuous stimulus measures appearing to be having a positive impact. If the situation in Greece continues to intensify and weighs on investor sentiment, we are likely to see a knee-jerk reaction from investors as the possibility of a Greek exit gets priced in again. In the longer-term, the prospects for the Euro are appearing more positive and further USD weakness would improve the prospects for the EURUSD. In the short term though, the situation in Greece will continue to weigh on investor sentiment and it would not be a surprise if Euro pressure intensifies as the Greece deadline fast approaches, we might even see the EURUSD approach 1.046. The NZDUSD took a tumble after inflation data came in much worse than what was expected. This is the second quarter of dips in inflation and the markets will now be looking for dovish comments from the Reserve Bank of New Zealand (RBNZ) to talk down the New Zealand Dollar. The NZD has appreciated heavily against the AUD and the RBNZ are likely to make exports competitive against both its major trading partner, while also weakening the NZDUSD. The NZDUSD has recently touched a three-month high just above 0.77 and I am certainly looking for lower lows in the coming weeks. The NZDUSD has recently touched key resistance around 0.765 and the market could be looking to turn this into selling momentum. The oil markets have opened up with the bulls looking to make their mark and test higher levels. I am still looking for WTI Oil to test the $59 level before we see major pullbacks on the charts, and it’s likely we could in turn see further falls to at least the $55 dollar level as a lower low has been forming while oil has stagnated while also looking for further momentum higher. With WTI Oil rising despite the oversupply concerns remaining strong, pullbacks in price could be the number one opportunity for traders as this week’s trading session commences. Gold fell to $1191 following upbeat comments from a Federal Reserve spokesperson, who said we should expect rate hikes to be in line with market expectations. However, these comments came from Rosengren (a dovish speaker) who also believes that US growth needs to be around 2.5% to 3% before we have a lift off in US interest rate increases. Either way, it does appear that interest rate expectations are being pushed back and with low inflation remaining a concern – we are probably not going to see any real movement in interest rates until the end of the year. Global concerns over the possibility of a Greek exit could also weigh on market sentiment, slowing down the possibility of global growth. All in all, I still feel that Gold is likely to look higher in the charts and more importantly, traders could look to hedge towards Gold as the risk of a Greek exit increases. The DAX has opened up stronger on the charts after failing to break support at 11629. The DAX has been lifted by comments from the ECB that Quantitative Easing (QE) has so far worked remarkably well, and many believe that the Euro-zone could weather a Greek exit when it comes to the equity markets. However, the banking sector may suffer a bit in the short term and it will be interesting to see if the EU stress testing has been preparing for such an event. I remain bullish on the DAX and am still looking for higher highs, as growth in Germany is expected to be lifted and the strong bullish sentiment continues to dominate after a successful round of QE. Certainly a push to 12392 is certainly on my horizons again, though this week might be tough given the 1st deadline in Greece. Disclaimer: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime Ltd, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same. 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From The Floor: Draghi Risks ‘Losing His Mind’ On Euro

Going locoFrom the Floor was eyeing those euro exchange rates with some relish just two months ago as the collapse of EURUSD towards parity made the prospect of a week or two in the Mediterranean sun all too delicious to contemplate.But fast forward to May 18, EURUSD is at 1.1434 (0655 GMT) and the prospect of a path opening up towards 1.2000 is becoming ever larger.”There was even more bad data out of the US Friday and we saw a selloff that, while it did not take hold ultimately, does see EURUSD elevated,” says John J Hardy, head of forex strategy at Saxo Bank. “I still think this is about positioning but if the dollar goes into Wednesday’s Federal Open Market Committee minutes weak, we could have a sell the rumour, buy the fact scenario.”Elsewhere, the dollar largely held its own after that bout of weakness that ended last week.”EURUSD at 1.1500 is a really major flatline level and was a key area when the pair was on the way down in the first quarter,” says Hardy, speaking live from the Copenhagen floor. “While I don’t see it going much higher, 1.1800 is a huge retracement level converging with the 40-week moving average and beyond that, 1.2000 is the ultimate line in the sand.”That will undoubtedly concern European Central Bank president Mario Draghi.”Look for Draghi to start losing his mind if we get near to 1.2000 again,” says Hardy.Fixed Income desk head Simon Fasdal agrees and expects Draghi to possibly intervene in a verbal sense at least with subsequent headline risk for European markets.


Jumping inOne-month EURUSD vols were slightly elevated Monday relative to other pairs but that was primarily down to the timing of next month’s FOMC meeting (June 18) rather than any particular spark in the market, says Dan Larsen from the FX Options desk in Copenhagen.”There is an opportunity to go long on vols in this market as we’re seeing significant moves happening on the back of very little like a move for spot above 1.1350 on Friday,” says Larsen. It’s a different story altogether on one-month USDJPY though, says Larsen, where vols slipped to 7.2%. “It’s significantly lower than three months ago and we need to get a test of that big support at 1.1850 (in spot) which may happen soon.”USDJPY was at 119.63 at 0655 GMT.

Above waterIn the corporate bonds market, meanwhile, it may have felt like bunds were drowning but they seem to have popped up for air Monday, at least temporarily.

“Bunds have opened up above 153.50 but it is still too early to call off this recent bout of weakness,” says Fasdal.

“Greece has a looming deadline yet again on June 5 when it is expected to pay back EUR 1.5 billion to the IMF and there is absolutely no prospect of this happening unless there is a negotiated settlement,” he says. “This exposes us to Greek-headlinerisk from late May onwards.”

That has so far not translated into any major move on the Greek yields curve, says Fasdal, but with “Greek banks running out of collateral”, this could change. “Market participants continue to believe in a negotiated solution,” Fasdal adds.

The bunds turbulence has been dramati

Wherever I lay my hat……That is of course From the Floor’s home, but if you’re a property owner or worse, property investor in China, you might be wondering if you’re hard-earned cash might have been better spent elsewhere like the equities market.China released APR home prices which showed a fall in 48 out of 70 cities, says the Singapore desk’s Christoffer Moltke-Leth.”There are some signs of prices starting to bottom out, but the progress is slow given the amount of stimulus being pumped in by the People’s Bank of China and the recent reversal of property curbs,” he says. That was reflected in the markets with property giants Vanke, Wanda and Poly all down by up to 2%.

What is happening to Chinese property?

And finally…Any thoughts that the Shanghai Composite Index’s recent bull run was over were dispelled Monday as it returned to growth after Friday’s selloff and despite that hit for the property sector market shares.”The Shanghai Composite index was up a fraction after the selloff on Friday,” says Moltke-Leth, seemingly demonstrating that it needs an avalanche of bad news to take the wind out of its sails.

FX Update: NFP Is Dead Ahead But Is The Euro Squeeze Done?

Yesterday saw a further aggravated sell-off in European bonds, but at least a temporary bottom was found right near the 1.00% yield level in German bunds before a rally set in that took yields back below the previous day’s close, allowing EURUSD to finally find a ceiling and ease back lower after rallying above 1.1350 at one point yesterday. Further signs of relief and stability in European bond markets will likely allow the euro consolidation to continue. The uncertainty is whether the turmoil is over or whether it extends for a while.

Meanwhile, Greece exercised its option to delay today’s payment to the IMF after the latter extended the option to roll together its payments due this month to the end of the month and the latest noises from the creditors’ side point to little or no progress on the negotiations.The USD, meanwhile, is relatively resilient in the background, outside of the spike in EURUSD as we look toward today’s important employment report as the next key “incoming data” input. The Fed’s Tarullo was out fretting the quality of the US recovery and whether there was something worse afoot in the weak Q1 numbers than the factors attributed to causing the slump (weather, port strike and seasonality).We are leaning for an inline change in nonfarm payrolls print (the usual approx. 220,000 is expected) though I suspect the risk is for an upside surprise, which could generate significant further upside for the USD, especially in EURUSD if European bond markets are calming, but certainly elsewhere in other USD pairs. And remember to keep one eye on the trend in US earnings growth, which is at least half of the story from here on the timing and steepness of Fed rate hikes to come (market is extremely complacent here…) . A +300,000 print and average hourly earnings above 2.3% (2.2% is expected and 2.3% is the highest print since 2009, so 2.4% or higher would look very significant) might blow the doors off this market, though anything above 250,000 on payrolls with positive revisions and earnings growth at 2.3% with a better-than-expected month-on-month number (0.2% expected) would look very USD supportive.EURUSDEURUSD has been more about the squeeze on short euro positions this week rather than any notable weakness in the USD and today sees potential significant volatility for both currencies. Technically, the pair needs to plunge all the way back through the 1.1065/1.1000 area to signal that this entire squeeze episode is over and we can get back to discussing parity. Meanwhile, further bond market turmoil in Europe in the near term and/or a particularly ugly US employment report today (not expected) could mean interaction with the 1.1500 area and even the 200-day moving average up above 1.1750, though these levels look like quite a stretch at this point in time and the risk points more toward a sudden collapse back into the low range if USD strong and bad nerves in Europe calm.


The G-10 rundownUSD: waiting US data as indicated above – generally looking resilient and waiting to add EURUSD to the bullish USD story if the euro squeeze shows further signs of fading on bond market volatility easing.EUR: All about positioning and whether we are getting to the other side of the bond market turmoil – suspect we are nearer the end than the beginning of that phenomenon in the big picture.JPY: trading on a very weak footing since the big break in USDJPY above 122.00. Any extra-strength data from the US today (or severe disappointments) should be felt strongly here.GBP: Trading passively in the background and will likely trade like a low beta US dollar against the euro, if the euro squeeze is fading and the US employment report comes in strong today (i.e., GBP up versus EUR, but down vs. USD)CHF: Still reactive to Greek news but also the general squeeze in euro and suspect in the longer run that the upside in EURCHF remains the side of least resistance (with or without the euro bond market turmoil) once we get to the other side of a deal for Greece.AUD: Horrible trade report pressuring AUD a bit, and interesting to see today whether a strong US employment report can force a full rejection of the recent RBA-inspired rally and put the focus back on the lows for the cycle and beyond.CAD: weak oil prices pressuring CAD and we have the double whammy of the US and Canadian jobs reports today. Continue to focus on a test of the cycle highs above 1.2800 and an eventual test of the huge 1.3000 area.NZD: Interesting that fresh highs in AUDNZD didn’t hold – watching whether the coming days confirm that development as we face a bout of range trading for that pair. In NZDUSD, the focus is on maintaining the validity of the recent break below the 0.7200/0.7175 zone.SEK: EURSEK easing back lower in sympathy with the euro consolidation. We haven’t had sustained direction here since March.NOK: Little relief in EURNOK despite the euro easing back elsewhere, as the focus is on the oil price sell-off. A couple of interesting data points up today and the Norges Bank regional network report (somewhat akin to Fed beige book), which could shift the market’s expectations for Norges Bank (high risk of this eventually ahead of/at Norges Bank June 19 meeting) and maintaining a bias for a weak NOK. (EURNOK to test 9.00?).

Upcoming Economic Calendar Highlights (all times GMT)

  • Norway Apr. industrial Production Manufacturing (0800)
  • Norway Norges Bank Regional Network Report (0800)
  • US May Change in Nonfarm Payrolls (1230)
  • US May Unemployment Rate (1230)
  • US May Average Hourly Earnings and Average Weekly Hours (1230)
  • Canada May Unemployment Rate and Net Change in Employment (1230)

FX Update: Weak Risk Appetite Cows USD Bulls

The rally yesterday in EURUSD was likely driven by a rich cocktail: 1. weak risk appetite with technicals looking increasingly ominous in the US as the S&P500 index closed below its 100-day moving average yesterday2. the comments on the USD attributed to Obama who likely did say something, but it was not expressed through official channels and actually later officially denied3. fresh fuel from USD shorts put on hastily in the wake of Friday’s strong US jobs report. In addition, a plunge in Greek yields on talks that tomorrow may bring more clarity on Greece’s ongoing negotiations with creditors may have contributed to the euro upside, though the complacent EURCHF suggests otherwise. More verbal intervention from Japanese Prime Minister Shinzo Abe and the general risk off tone yesterday saw USDJPY tumbling from its fresh, post-NFP highs and the technical situation there favours consolidation rather than the prospect of immediate further gains as discussed below.Note the weakness in the commodity currencies on these latest developments, as they are failing to rally much against the USD even as the USD is weak elsewhere, a trend that is likely to continue as long as poor market nerves continue to plague markets. The next sentiment test for risk appetite likely comes in near major 200-day moving averages, which are still quite far away in the case of the German DAX index, but only about 1.5% away in the S&P 500.USDJPY rally rejectedA classic confirmation of a minor momentum pergence pattern (higher price not coinciding with higher momentum as indicated in stochastics) yesterday as Friday’s rally was entirely rejected.It could see the market focusing lower toward at least 123.20 (the 38.2% retracement) if we see a shallow consolidation, while the 122.00/121.50 is the important structural support for this rally.


The G-10 rundownUSD: Suffering on the risk-off tone yesterday, which may offer further headwinds in the nearest term, though not giving up on the longer term view toward a stronger USD.EUR: The quality of this rally is very tough to judge as it feels like conviction may be low in both directions at the moment. Let’s see if we can take out the range highs above 1.1450 before believing in a test-of-the-200-DMA scenario (rapidly descending from 1.1765 area). Risk off will likely continue to favour euro higher versus the weak commodity currencies and even GBP.JPY: Getting broader traction this morning against most of the major currencies on the risk off tone – though its full potential may only be realised if the risk off is accompanied with a bond market rally.GBP: Trading like a low-beta USD, getting mashed under the weight of the euro rally, but sterling is stronger versus the USD. This will likely end when the USD rallies again.CHF: Still waiting for more definite news from the Greece situation with the belief that downside risk for the franc vastly outweighs upside risk.AUD: AUD underperforming amid weak risk appetite – the question is whether AUDUSD downside or EURAUD upside is the best way to express this, with the latter moving more sharply at the moment.CAD: Risk off providing little reason to sell much below 1.2400 in USDCAD. May have to allow some slippage lower as long as the USD is under pressure elsewhere, but eventually looking for signs of the rally to resume.NZD: Two-way risk on Thursday’s (late Wednesday for those of us In Europe) Reserve Bank of New Zealand as the market is pided on the likelihood of a cut – generally preferring a weak NZD in the longer run, whether in AUDNZD or in NZDUSD. If the RBNZ fails to cut, we could see a significant near-term squeeze on a market that has likely gotten increasingly short the kiwi.SEK: EURSEK leaning higher, but the range (with slippage each time) has held for more than two months. Data flow of interest over the next couple of days from Sweden in the form of April Industrial Orders/Production tomorrow and CPI on Thursday.NOK: With smaller currencies weak as long as we’re in risk-off mode, risks of further EURNOK upside toward 9.00 ahead of next week’s Norges Bank meeting.

Economic data highlights

  • New Zealand Q1 Manufacturing Activity out at -2.8% QoQ
  • UK May BRC Sales, Like-for-like out at 0.0% YoY vs. +1.2% expected and vs. -2.4% in Apr.
  • Australia May NAB Business Conditions/Confidence out at 7/7 vs. 4/3, respectively, in Apr.
  • Japan May Consumer Confidence out at 41.4 vs. 41.9 expected and vs. 41.5 in Apr.
  • Switzerland May Unemployment Rate out unchanged at 3.3% as expected

Upcoming economic calendar highlights (all times GMT)

  • UK Apr. Visible Trade Balance (0830)
  • Euro Zone Q1 GDP (0900)
  • US May NFIB Small Business Optimism (1000)
  • Japan Apr. Machine Orders (2350)

FX Update: Greek Deal No Boost For Euro

We supposedly have “a deal” in Brussels, though we should know by now (and in line with what I state above) that even as Tsipras returns to Athens with this deal, its passage is no certainty.

The terms don’t appear especially generous and we already saw a popular rejection of a similar deal – so why would the Greek parliament push this deal through?

Still, some of the harshest terms floated during the summit seem to have fallen to the wayside, like basing a privatisation fund (of Greek public assets) in Athens rather than Luxembourg. And the EU is willing to inject 25 billion into the Greek banking system to help recapitalise the banks.

The market seems to want to hold its breath until full clarity – of any stripe, possibly – is found for the Greece question. All of the pent-up uncertainty that was evident in spiking implied volatility in EURUSD options in recent weeks has failed to result in any directional move thus far, and perhaps few want to make a significant commitment of capital when option values are decaying and amid the lack of compelling technical signals.

Chart: EURUSD EURUSD remains rangebound, showing an unwillingness to make any significant directional commitment, likely until this Greece situation has been sidelined – and in EURUSD terms, even if the Greek parliament agrees to this deal, the upside could be very limited if the focus reverts quickly to US/EU monetary policy pergence amid stronger US data.

The tactical resistance would appear to be around Friday’s highs just above 1.1200 and then the recent resistance at 1.1250. Above there, the clearer lines in the sand shape up around the descending line of consolidation and then the 200-day moving average descending close to 1.1550 now. To the downside, a close below the 1.1000 level looks like a compelling argument for more weakness ahead.


Besides the ongoing Greek headline risk this week, the other key event risk out of Europe is the European Central Bank meeting on Thursday, in which the market will look for what ECB president Mario Draghi has to say about the economy and the progress of its QE programme. There are no real signs of peripheral contagion at present.

While everyone is distracted with Greece, possibly the most important event risk this week is US Federal Reserve chair Janet Yellen’s semi-annual testimony before Congress. The open question at present is whether there is any sense that the Fed is worried enough about externalities (Chinese market disruption, Greece) to continue to keep a very cautious tone on the eventual first rate hike.

Certainly the market Is very complacent on the Fed, and any clarity on Greece this week could also help the market write off its fears that this issue will hold the Fed back.

The G-10 rundown:

USD: Yellen testimony on Wednesday/Thursday the key focus this week out of the US – market is extremely complacent on Fed, but then again, when was the last time Yellen waxed hawkish? The other key data point for the US data front is tomorrow’s US June Retail Sales data.

EUR: The “outcome” of the summit is breaking during the course of writing today’s update – just remember that a “deal” in Brussels is not the end of the story and the initial enthusiasm could yield quickly to more range trading until the next steps later this week. Even if the deal is ratified, renewed focus on the euro carry trade could mean euro downside almost across the board.

JPY: Continues to trade like a proxy for risk, with the key for USDJPY likely the fate of the major world stock indices and whether the 200-day moving average remain intact here (S&P 500, German DAX and even Shanghai composite have all been interacting with their respective 200-day MA’s in recent days.

GBP: Any euro upside on a Greece “deal” may fade quickest here, as GBP is a pro-cyclical trade and a strong uptick in risk appetite is likely to get the focus back to monetary policy pergence and the prospects for the timing of the first BoE hike.

CHF: Mired in a range for a long time now and waiting for more clarity on Greece and eventually, whether the current negative rates are low enough to weigh against the ECB’s.

AUD: Has gone sideways as the recent RBA failed to provide any strong signals on the rate outlook. Some concern here for AUDUSD bears if we don’t get downside resumption soon.

CAD: Remains on a weak footing on weak oil prices and cycle highs not far away just above 1.2800.

NZD: Outperforming AUD, but see little additional potential to the downside in AUDNZD, where the key support area looks like 1.0900-ish.

SEK: At the top of the range – will a return of risk appetite keep the resistance around 9.40/42 intact? Tomorrow’s Sweden CPI release is the key data point this week for SEK.

NOK: Underperforming recently on weak oil prices, but interested to see whether a risk appetite comeback could encourage a compelling technical reversal in EURNOK, which would be a close significantly below 8.85.

Euro Trading Higher Ahead Of Germany’s GFK Consumer Confidence Survey


EURUSD Movement

For the 24 hours to 23:00 GMT, the EUR declined 0.21% against the USD and closed at 1.1064.

In the US, the consumer confidence index unexpectedly plunged to 90.9 and notched its lowest level since September 2014 in July, compared to a revised reading of 99.8 in June.

Other economic data showed that the preliminary estimate of the US Markit services PMI advanced more than expected to 55.2 in July, from a reading of 54.8 recorded in June.

In the Asian session, at GMT0300, the pair is trading at 1.1081, with the EUR trading 0.16% higher from yesterday’s close.

The pair is expected to find support at 1.1038, and a fall through could take it to the next support level of 1.0994. The pair is expected to find its first resistance at 1.1110, and a rise through could take it to the next resistance level of 1.1138.

Trading trends in the Euro today are expected to be determined by Germany’s GfK confidence survey data, scheduled in a few hours. Additionally, the Fed’s interest rate decision, scheduled later today, would grab lot of market attention.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

Yellen provides some clarity, the USD gains slightly

A mildly hawkish Janet Yellen offered the clarity most investors had been seeking, when at yesterday’s conference she stated that rates in the US may likely be hiked before the end of the year. Some mist was cleared away as investors digested the news that the hike would take place either in October or December. With the prerequisites of a rate hike reverting back to a dependency on US data, the USD experienced an appreciation. The additional statement which discussed that global economic weaknesses may have a muted impact on altering the Fed’s plan to raise rates may reduce some of the pressure which the USD has been receiving from the developments within China. Despite the core durable goods orders for the US printing below expectations, the clarity gained from Yellen’s speech inspired some bullish momentum within the USD. This appreciation may be viewed within the Dollar Index which was in a vulnerable position earlier in the week due to the soft data from China exposing it to losses. Focusing on the EURUSD, the USD strength has resulted in a sharp decline back to the 1.1150 regions as of writing. If USD strength persists and prices sink back below the 1.1100 support, the technical breakdown on the EURUSD may open a path to the next relevant support at 1.1000. Most European equities closed in negative territory yesterday as fears around the health of China influenced a selloff. The FTSE100 which has traded to levels not seen since the 24th of August remains in the spotlight. This index may continue to experience further losses, as pressure from the declining mining stocks linked to China act as a factor that may warrant a further drop. On the economic data front, today is fairly quiet with the only major release in the New York session being the Final GDP q/q for the States. AUDUSD The AUDUSD experienced a sharp incline above the 0.7200 resistance before a sharp decline back below the 0.7050 support. This pair has become technically bearish on the daily timeframe. Prices are below the 20 daily SMA and the MACD has crossed to the downside. The 0.7050 may act as a dynamic resistance which should provide the foundation needed for a decline to the next relevant support at 0.6900. EURJPY The EURJPY is technically bearish on the daily timeframe. Prices are trading below the daily 20 SMA and the MACD has crossed to the downside. As long as prices can keep below the 135.50 resistance, a decline back down to the 133.50 support may be expected. CADJPY The CADJPY remains in a period of consolidation. Within the wedge, there exists resistance at 92.50 and support at 89.00. Prices are below the daily 20 SMA and the MACD has crossed to the downside. A breakdown below the 89.00 support may open a path to the next relevant support at 87.30. AUDCAD The AUDCAD remains technically bearish as long as prices can keep below the 0.9400 resistance. The MACD trades to the downside, but prices are currently trading marginally above the daily 20 SMA. A move to the next relevant support at 0.9200 may be expected as long as prices can keep below the trend-defining resistance.

Further concerns over slowing growth in China

Markets are set to wake up to concerns over a slowing China economy for the third successive day following annualised Industrial Production data slipping below expectations a few hours ago. This economic release adds to the underlying anxiety around economic momentum consistently declining in China, and compliments the below expectations inflation release on Tuesday morning, as well as the incredibly weak trade data that was released over the weekend. Imports dropped by an astonishing nearly 19%, which goes some distance towards explaining why those economies which have become so reliant on exports to the major economy are set to notice weak demand from China. The trade data also provided one of the major reasons why the Organisation for Economic Co-operation and Development (OECD) downgraded economic growth forecasts at the beginning of the week. Although China GDP has slipped below the government target and all indications currently point towards economic momentum continuing to decline, its domestic growth is still phenomenal and a slowing down overall economy will not cause too many concerns domestically unless it begins to negatively impact local employment. It is an issue for all of those economies that have become reliant on trade with China, because they are basically going to inevitably notice slowing demand for products from China. Along with the consistent uncertainty over the timing of a US interest rate rise, the resumption of fears over the slowing China economy have contributed behind the losses seen in equity markets during the early part of the week. Overall, the economic data that has been released from China over the past couple of days is just going to install further pressure on the People’s Bank of China (PBoC) to ease monetary policy further in the hope of reinvigorating economic data. I still see the heightened potential for one more interest rate cut before the end of the year. EURUSD falls to six-month low The resumption of an obvious contrast in both economic and monetary sentiment between the United States and Europe has encouraged sellers to attack the Eurodollar. The pair has now fallen to a six-month low at 1.0673 and the markets are all of a sudden returning to talking about a potential move to parity before the end of the current year. For the chances of this to increase the Federal Reserve would need to provide further encouragement to traders that they will begin raising US interest rates next month, while the European Central Bank (ECB) would also have to continue repeating the threat of providing further stimulus to the European economy. It is important to point out that the only major reason for the Eurodollar bouncing away from its 11-year low at 1.04 earlier this year to above 1.15 was due to continually pushed back US interest rate expectations, meaning any emerging concerns that the Federal Reserve might not raise US interest rates next month despite the superb NFP report on Friday could motivate a recovery of recent losses in the pair. IEA sees oil below $80 until 2020 Any optimism over WTI Oil trading back towards $100 received a serious blow after the International Energy Agency (IEA) predicted that prices are unlikely to rise consistently above $80 before the end of the decade. The combination of an aggressive oversupply in the markets and slowing demand for the commodity were cited as the major reasons against a major rebound in the commodity. The only difficulty with believing this prediction is that it is too difficult to predict where prices could be one year from now, let alone for the remainder of the current decade. In the meantime, the repeated signs of there being an aggressive oversupply of oil in the markets will continue to negatively impact investor attraction towards the commodity. Not only are US inventories still around near-record levels, but increased production is being announced elsewhere and Iran is expected to begin unleashing their own supplies at some point in the near future. Although there is one final OPEC meeting scheduled before the end of the year, it is looking very unlikely that there will be a production cut and this makes it difficult to predict a significant recovery in WTI before the end of the year. In regards to the technicals on the daily timeframe, we are currently noticing WTI trading in an inverted wedge pattern. We have bounced away from the lower channel of this pattern over the past two days, and the Stochastic signaling that it is oversold indicates that prices could continue to trade higher. With that being said, there is an oversupply in the markets and the current fears over the global economy can lead to less demand for the commodity. A break below the trendline would open up the gates to a move towards $42 and if this breaks, a potential move towards $40. GBPUSD attempting to recover losses After experiencing another technical rejection at 1.55 early last week, the GBPUSD has encountered an aggressive sell-off and the pair is currently attempting to recover losses following a sudden decline to its lowest valuation in over six months at 1.5026. Technically speaking, the GBPUSD continues to look weak and the bounce back above 1.51 during the early part of the current week can be considered as a recovery of recent heavy losses. With that being said, the GBPUSD has bounced away from its descending channel after testing the lower trendline and with both the RSI and Stochastic attempting to move away from the oversold boundaries, the pair could still aim to recover some further losses. Although the majority of UK headlines are focusing on UK Prime Minister David Cameron and a potential EU referendum, the latest jobless claims and average earnings are released from the UK economy on Wednesday morning. Investor sentiment towards the Pound could be lifted if further progress is recorded in the UK employment sector and if average earnings continue to improve and increase optimism around a potential rebound in inflation over the upcoming months. Overall though, prices are currently trading below both of its 50 and 200 MA’s on the Daily Timeframe, and it is currently looking ambitious to expect any potential further rally in the GBPUSD to progress any higher than 1.53.Disclaimer: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same. Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. 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EURUSD attempts entry to 1.14 before ECB decision

After extending down to a near two-week low at 1.1305 on Monday, the EURUSD has steadily appreciated towards 1.14 before the European Central Bank (ECB) decision on Thursday. Although the EU economic sentiment remains bleak and the pressure on the ECB is intense to do more to reinvigorate the fortunes of the EU economy, the general consensus is that the central bank will not change monetary policy later on Thursday. The expectation that the ECB will not further QE quite yet is encouraging some purchasing of the Euro from traders. With that being said, the economic sentiment in Europe is still as bleak as ever with the economy being continually plagued by both dangerously low inflation and stagnant economic growth. I am expecting policy members of the ECB to repeat the growing threat of further monetary stimulus and to continue talking down the bounce in the Euro over the past six months because to be honest, the jump in the currency has nothing to do with improved sentiment in Europe. The only reason for the gains seen in the EURUSD after the pair hit over a 10-year low earlier this year is because US interest rate expectations have been repeatedly pushed back. This is one of the major obstacles that the ECB face when it comes to the EURUSD, because a weak investor sentiment towards the USD will naturally lead to appreciation in the pair. Personally, I still don’t think the USD has “bottomed” out yet and weakness in the USD will remain as a probable theme in the currency markets. As US interest rate expectations get pushed into the first quarter of 2016 and possibility beyond, the USD will be at threat to further periods of vulnerability. As they have been in late September and earlier in October, any advances in the EURUSD above 1.14 and towards 1.15 will be seen as possible selling opportunities for investors to keep an eye out for. WTI slips below $45 Momentum for WTI has continued to look weak with the commodity now dropping below $45 to $44.85 in trading yesterday. Since unexpectedly advancing above $50 less than two weeks ago, WTI Oil has declined by over $5. The outlook for WTI remains bearish and I think prices are going to remain depressed throughout the remainder of 2015. The repeated signs of an aggressive oversupply of oil in the markets are going to remain a dominant threat to investor sentiment, and I also believe that the continual concerns over the global economy could lead to reduced demand for the commodity. The possibility of there being reduced demand for commodities due to the ongoing concerns over the pace of global economic growth is something that I don’t personally believe has been priced into WTI. This can pressure prices further and it is important that investors keep an eye on the $44 area because this has been seen as stubborn support level in the past.