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Completion of Fed’s QE3

In our opinion, the main event of the currency market was the completion of Fed’s QE3 program in late October. To a large extent, it caused the US dollar index increase in November by 2.3%. Of course, it was anticipated, and it surged 11% since the beginning of this year. It was also promoted by clear evidence of the US economy recovery. After the US Q1 GDP in 2014 shrank 1%, it rose 4.2% in the second quarter, and 3.9% in the third quarter. The unemployment rate dropped from 6.6% in January to 5.8% in October.
Amid the US successful economic development, the EU economy indicates a slowdown. The European Q1 GDP upped 1%, while in the second and third quarters it grew 0.8%. The labour market recovery is almost invisible. The unemployment rate in the EU in January was 11.8%, and in October – 11.5%. EUR/USD rate slipped 1.6% in November, and dipped 10.6% since the beginning of the year. Note that currently the ECB is preparing to launch the bank bond purchase program supported by euro printing. This program is similar to the completed QE3 conducted by the US Fed.

The Q1 GDP in Japan this year rose 5.9%, and in the second quarter it tumbled 6.8%. According to forecasts, Q3 GDP would fall 1.6% more. This negative trend is explained by the economy slowdown amid the nuclear plant disaster clean-up operations in Fukushima and “freezing” a number of other plants, the higher price on hydrocarbons in the first half of the year and strong competition of high-tech goods manufacturers from China and South Korea. Japan increased the sales tax from 5% to 8% since April 1st this year in order to reduce the debt load. It also had a negative impact on economic activity. As a result, JPY/USD rate in November dipped 6%, and 14.3% since the beginning of the year. Note that the yen depreciation was caused by the BOJ program of purchasing government bonds, similar to the American "quantitative easing". The unemployment rate in Japan is traditionally low, and in September it was 3.6%. However, it was higher than 5% over the past 60 years only in the midst of a global economic crisis of 2000 and in 2008.

As for December, we accept the possibility of the US dollar strengthening continuation. We recommend paying attention to the following macroeconomic indicators. They may affect the exchange rate.

USA:

  • Dec 5: Unemployment rate;
  • Dec 11: Retail Sales;
  • Dec 17: CPI and Fed meeting.
European Union:
  • Dec 12: Employment change and industrial production;
  • Dec 17: CPI.
Japan:
  • Dec 16: Trade Balance.

9 December 2014 @ 17:59

Euro against the Greenback at Fresh 22-month Low

The Euro against the US dollar increased its downside momentum early on Thursday morning trading and dropped to 22-month low at 1.2728. At the moment there is not any technical support level to maintain the negative bias in the forex pair. In addition, the much better than expected New Home Sales, released at 504K while were expected at 432K reaching a 6-year high gave a boost to the greenback.


The US dollar is broadly stronger in today’s trading with the US dollar index breaching previous cap at 84.77 and heading now to the next longer term resistance at 88.36, it was lastly seen at 85.22. Investors’ expectations build toward an earlier rate hike than expected. For today we expect some major news for the greenback, first we will focus on US Durable Goods orders and on the US Jobless Claims.


Elsewhere, the British pound has been also declining against the greenback returning to previous Thursday’s level at 1.6276. The sterling has been stronger after the No vote for independency but was unable to recover strongly due to weak fundamental data indicating that the BOE would be far away in terms of time of a rate hike. The BOE Governor, Mark Carney would speak today and could give its view over the UK economy, thus we would watch it closely.


The US dollar against the Japanese Yen returned to previous peak at 109.40 and its now threatening to rise to fresh 6-year high. The Fed and the BOJ diverge in their monetary policies and that has been providing a support to the US dollar. We are highly anticipating the Japanese CPI data tomorrow for further conclusion Japanese monetary policy. Lastly, the Australian dollar versus the greenback dropped to fresh 8-month low at 0.8795 as the bearish bias is sustainable despite the oversold technical oscillators.


Questions and suggestions:analytics@infinmarkets.com

25 September 2014 @ 09:24

US Dollar Index at 4-Year Cap ahead of Principal Reports

The US dollar strengthened yesterday against the commodity currencies, more specifically the Australian dollar and the Canadian, while against other major currencies the greenback was in a range trading formation. The US dollar index remains limited by more than a 4-year cap at 84.77. The Fed’s chairwoman Janet Yellen said that the investors should be prepared for an earlier than expected rate hike but this did not raise further the US dollar and that is due to the previous week Fed’s decision. Moreover geopolitical tensions are rising as United States bombed militant groups in Syria yesterday. We recognize risk-off as the European and US equities are declining.


The US dollar against the Canadian found resistance at 1.1082 in yesterday trading after the weaker than expected Canadian Retail Sales data. The USDCAD refreshed its upside momentum in the intraday and is currently retesting the longer term cap at 1.1097. In the daily timeframe the trend is rising and could overpass its resistance zone between 1.1082/1.1097. Commodities are falling, the Crude Oil is declining as US increases production and the demand growth is diminishing.


The Australian dollar against the US dollar declined to support at 0.8830, geopolitical risk is rising and that increases selling pressure. Moreover Iron ore estimate prices were cut further for the 2015 and that adds to the selling pressure. Additionally the terrorism alert remains high citing the threat posed by supporters of Islamic State extremists. Lastly, the RBA warned in its semiannual Financial Stability Review about some housing market imbalances and sound lending practices by commercial banks should be reinforced. The AUDUSD is oversold at the moment but there are fundamental pressures, we do not consider the 0.8880 a good price to sell we would be more comfortable to go short after a bounce up.


On the data front we expect today the US New Home Sales data and Crude oil inventories. The US Dollar index it was limited by a very important resistance at 84.77 which is a more than 4-year high. We would watch closely the New Home Sales as well as the following days reports like the US Jobless Claims, Durable Goods Orders, Final GDP report and ofcourse for the longer run the next week’s Non Farm Payrolls.


Questions and suggestions:analytics@infinmarkets.com

24 September 2014 @ 09:11

Scots Go With Union, British Pound Separation Risk Eliminates

Currency markets received some important events in the recent trading. Firstly the Federal Reserve reduced its asset purchases to $15 billion monthly and said that at the next meeting would end quantitative easing program. Secondly, Scotland voted 55.4% no to independency and chose to go on with UK.


The US dollar was broadly stronger after the Fed monetary report release. The FOMC projections revealed that expectations for a rate hike in 2015 remains solid, with 14 FOMC participants projecting a 2015 hike and 2 in 2016 instead of the June release where 13 participants projected a rate hike in 2015 and 3 in 2016. Also, the average projection of the Fed funds rate increased. All that strengthened the greenback yesterday with the US dollar index peaking at 84.77 which is a 14-month high and we do not expect an easy penetration of that cap.


Early on Friday the Scottish referendum outcome strengthened the European currencies because the uncertainty faded. The British pound jumped to 1.6524 against the US dollar recovering from previous losses. The Bank of England is returning to the normal course of its monetary policy and we expect a tightening of the policy in first half of the 2015 as on Tuesday we saw the non-volatile items CPI increasing. The UK Gilt 10 year yield declined 30bps as risk of separation eliminated.


Elsewhere, the Euro against the US dollar recovered to resistance at 1.2928 in yesterday trading but in the last two hours downside bias refreshed. We look forward for the Euro-zone Current Account data but the common currency in general is week. The EURUSD declined since May 7th from 1.3927 to today’s bottom at 1.2835, the lower price limits the potential profits for going short and that is an add up risk also we are near a 2-year support at 1.2772, therefore we might see a corrective move in the longer term. Lastly, the US dollar against the Canadian eased back to support at 1.0924 and we focus today on the Canadian core CPI and Wholesale data.


Questions and suggestions:analytics@infinmarkets.com

19 September 2014 @ 09:25

Investors Lie Low Under FOMC and Scot Referendum Shadow

Ahead of the FOMC meeting the US dollar is mostly steady against its major peers. The US dollar index is consolidating in 84.47/83.94 zone waiting for the tone and the projections of the Federal Reserve later today. In the last NFP report for August the employment increase was well below expectations and that limited speculation for an earlier rate hike. We expect that the central bank would continue its asset purchase tapering to $15 billion monthly buying from $25 billion that is currently and use a straight language on when the bond buying program would end. Moreover, earlier than the Fed monetary announcement we expect the US CPI data, it is projected that the yoy CPI eased to 1.9% increase in August from previous month at 2.0%.


Against the Japanese Yen, the US dollar is firm slightly below the cap at 107.18 and holds ready for advancing to fresh 6-year highs. Some downside pressure came from news that People’s Bank of China is adding $81 billion stimulus to support growth but the currency pair held its ground as Japanese funds showed their preference for foreign assets. At the same time, the US dollar is down against the Canadian dollar, risk appetite improved on Chinese stimulus plan and also Canadian Manufacturing Sales were stronger than projected lifting the loonie. Another factor supporting the Canadian dollar is that its central bank monetary policy does not diverge from current Fed monetary policy with Bank of Canada likely to increase rates earlier than Fed. Therefore, we expect in the long term the Canadian to be stronger than the US dollar.


Elsewhere, the Australian dollar jumped to cap at 0.9110 against the US dollar as investors risk appetite improved due to Chinese QE. Nevertheless, the currency couple is likely to return to downside bias as pressures on exchange rate remain elevated since fundamental values take some time to adjust. The British pound versus the US dollar made a reversal structure in the intraday rising to fresh 10-day high at 1.6309 that is the largest upside in the last two months. The sterling was supported by higher percentage increase on core CPI and HPI than what was expected. Latest polls on Scottish referendum showed fragile lead for the No camp. The GBPUSD would be a highly risky currency for trading until the outcome is out.


Questions and suggestions:analytics@infinmarkets.com

17 September 2014 @ 09:17

Eyes on US Dollar and GBP ahead of FOMC and Scotland Vote

The Australian dollar against the US dollar is hovering above psychological support at 0.90, recovering slightly in yesterday due to oversold indicators. Earlier on Tuesday the Reserve Bank of Australia released its last meeting minutes where the central banks neutral stance is shown there as well and that the fundamental value of the currency rate is lower. That is adding to the pressure on the currency couple, the downside bias revived and the prices are likely to retest 6-month low at 0.8983.


The US dollar against its major peers was mostly firm as the FOMC meeting is closing. Investors are speculating on the time of Federal Reserve rate hike with chances increasing that rate increase will take place in the first half of 2015. The US dollar index holds its ground near 15-month high at 84.47. There is a major resistance there and that could limit upside bias of the greenback.


The US dollar against the Japanese Yen maintains its ground slightly below the resistance at 107.37. The bullish structure prevails but the technical indicators are overbought and that creates concerns over the sustainability of the upside development. At the same time the greenback against the Canadian declined to support at 1.1033 after the weaker than expected US Industrial Production. The USDCAD attempts to recover the rising bias and could revisit previous peak at 1.1097.


The British pound remains weak against the greenback due to high risk of Scots independency vote. Polls between Yes and No on the question should Scotland be independent has narrowed so much that is hard to call the result. The GBPUSD has escaped to the downside from the earlier shorter term range trading between 1.6277/1.6218 and is currently trading at 1.6193. On the data front today we expect the UK CPI data which are projected to be lower than in July. Later on we focus on the Euro Zew Economic Sentiment and in the evening we will watch the US PPI and the Canadian Manufacturing Sales.


Questions and suggestions:analytics@infinmarkets.com

16 September 2014 @ 08:46

Aussie to New 6-month Low, Scots Vote and FOMC in Epicenter

During the weekend we saw data from China undermining growth and spreading concerns over the global economy. The Chinese Industrial production for August was at the lowest point since March 2009, Fixed Asset Investment for January to August period missed estimations and was lower than January-July period. Prices for commodities fell to fresh lows with the Bloomberg Commodity Index of 22 futures dropped to its lowest in six years.


As a result of the latter Australian dollar against the US dollar opened with a price gap on Monday morning and went to fresh 6-month low at 0.8983. Demand for the main exports of Australian economy is decreasing, like Iron ore and Copper and that adds to the selling pressure, we would like see more comments by RBA members for preferred lower exchange rate which would likely drive the forex couple lower. Tomorrow morning we expect the release of Monetary Policy minutes of the September 2nd meeting of RBA. Also the Assistant Governor of RBA will speak.


The main driver of this week would be the FOMC statement on Wednesday and the Scottish vote for independency on Thursday. The US dollar in the past week jumped to cap at 84.47 and then entered in consolidation mood as the EURUSD and GBPUSD bounced up on profit collection. At the moment the GBPUSD trades in tight range between 1.6277/1.6218 and is considered of very high risk as polls do not show a clear result for the Thursday referendum. That week would redefine the attitude of investors toward the sterling because we have tomorrow UK CPI data, further decline in inflation diminishes chances for BOE rate hike. Then on Wednesday Employment report and on Thursday apart the referendum we expect UK Retail Sales.


The Euro against the greenback draw a resistance line at 1.2974, general attitude towards the Euro is bearish due to dovish ECB while investors speculate for monetary tight by Fed on Wednesday. Technically the currency couple is oversold and that excuses the current sideways but we would expect negative pressure to continue. Tomorrow we look to Euro-zone ZEW Economic Sentiment which is expected to be lower in September compared to August.


Questions and suggestions:analytics@infinmarkets.com

15 September 2014 @ 10:08

Commodity Currencies Decline against the US dollar

The greenback has been stronger against the commodity currencies because commodities like the precious metal, Oil and Copper were falling. Another factor adding pressure on the AUDUSD was that Australian government raised the terror alert to high and that limits the risk appetite of investors with that reflected on ASX 200 red light close. The AUDUSD dropped straight to support at 0.9053 after finding resistance yesterday at 0.9251, that was a 1.78% move. At the moment in the intraday technical oscillators are oversold therefore we would expect some corrective reaction. On the data front we expect the US Retail Sales data which would have an impact on the currency couple.


Concerning the US dollar against the Canadian the cap at 1.10 was breached with prices closing above in the daily time frame. That was most likely due to weaker than expected Canadian New Home Prices indicator. US Jobless claims were less than projected but that did not limit the bullish bias for over passing the resistance at 1.10. We have a fresh higher high in the currency pair price pattern thus we would expect the upside structure to develop further. Again the US Retail Sales release later today could support the rising scenario in case it comes stronger than expected. The projected figure for Advance Retail Sales is at 0.6%.


Elsewhere, the US dollar was steady against its peers with the US dollar index remaining firm near its recent high at 84.47. Against the Japanese Yen, the US dollar inched to fresh 6-year high at 107.37. The EURUSD consolidates slightly above the previous support at 1.2864 with investors looking to Industrial Production release and Euro group meetings. The downside bias in the EURUSD remains high after the ECB President announced bond-buying program and cut rates to 0.05% thus we would expect prices to go to next historic support at 1.2772. Lastly, the British pound against the US dollar bounced up to 1.6277 with main driver in this case the Scottish independency referendum; we would expect the volatility to increase next week as we approach to Thursday when referendum would take place.


Questions and suggestions:analytics@infinmarkets.com

12 September 2014 @ 09:08

Aussie Bounce Up after Record High Employment Change, US Claims Eyed

The Australian dollar jumped from yesterday bottom at 0.9111 after the employment report showed a huge improvement in the number of persons employed during August. The employment change was expected at 15.2K and was released at 121K and the unemployment rate dropped to 6.1% while it was expected at 6.3%. The statistics bureau of Australia said that the record number of employment increase was because of a rotation in its survey group. At the same time the Chinese CPI for August stood at 2.0% compared to 2.3% the previous month and below expected at 2.2%.


The AUDUSD therefore has two contradicting dynamics driving its trading early on Thursday, the forex couple prices jumped to 0.9215 providing some good chance to reposition on the short side as the down trend is in place and the chances favor the downside revival. Later on today the US Jobless Claims would be released with investors focusing there for clues on Federal Reserve’s rate policy. Stronger than expected US Jobless Claims would strengthen the greenback further and thus push lower the AUDUSD.


The Reserve Bank of New Zealand maintained the OCR at 3.50% as widely expected and the its Governor said that that would keep a wait and see stance for some period before policy adjustment decision, lower inflation expectations provide room for a period of stability in interest rates. The market participants interpreted this as more dovish than expected with the NZDUSD taking the down walk to a more than 7-month low at 0.8171.


Elsewhere, the greenback remains firm against its counterparties with the US dollar index holding its ground near the cap at 84.47. The British pound against the greenback bounced up to 1.6218 as traders are collecting their profits from previous short positions. Uncertainty over Scotland’s independency remains high with Mark Carney, the Governor of BOE, saying that in case they keep sterling then the independent Scotland would need to build up currency reserves more than the size of the nation’s economy. With one week ahead of the referendum the recent polls show that the separation is very possible and that would have impact in other economies as well, for example there is tendency of Catalonia region towards independency from Spain.


Questions and suggestions:analytics@infinmarkets.com

11 September 2014 @ 08:55

Aussie In a Downward ahead of Australian Employment Report

The Australian dollar weakened considerably to support at 0.9155 against the US dollar after being in a range trading formation for a more than a month. The greenback remains strong in general but more specifically its power is increasing with Asian currencies while against other major currencies is consolidating. The AUDUSD downside bias was triggered by the release of a worse than expected Business Confidence indicator and the violation of the bottom of the range trading at 0.9259 in yesterday session. Earlier today Westpac Consumer Sentiment released a far below number than the previous figure and that increased selling pressure, prices have now reached support at 0.9155.


The kangaroo versus the greenback is now in a downtrend with the greenback remaining firm as expectations for rate hike are growing and tomorrow morning we anticipate Australian employment change expected to stand at 15.2K and Unemployment rate to fall at 6.3% from 6.4%. Weaker numbers than what is projected would have a further negative impact on the currency pair and that could push it to next daily support at 0.8995. In addition, the Chinese CPI is expected to be reported at 2.2% for August, should that come lower, then risk appetite would decrease lowering demand for Aussie.


Elsewhere, the greenback continued its rising directions against the Japanese Yen to a fresh 6-year high at 106.54 as investors are looking to US Jobless Claims tomorrow and expectations is built that a good number would support the Fed’s interest rate raise next year. The Euro against the US dollar is hovering at the moment above the 14-month low at 1.2864; negative bias remains firm while tomorrow we expect ECB monthly bulletin and German CPI data, also ECB President would speak in the evening at Eurofi Financial Forum.


Lastly, the British pound is consolidating after finding support at $1.6065. Eight days are away for the referendum on whether Scotland should be independent. There is a pause of news coming from UK for that matter however at any moment we could have new developments so we should be cautious. Uncertainty remains high because separatist outcome took the lead thus the pound is likely to dip deeper.


Questions and suggestions:analytics@infinmarkets.com

10 September 2014 @ 09:00

 

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