Some firm US Consumer Confidence data underpinned the US dollar on Friday, once again putting the Euro under heavy pressure, which closed the month at new trend lows. The dollars uptrend looks set to remain intact this week, with the ECB meeting due on Thursday, at which Mario Draghi could well announce some form of easing in the EU, including the introduction of QE. Thursday also sees the ADP Jobs numbers which comes ahead of Friday’s US Jobs/NFP data at which another strong reading would suggest that the Fed could act to raise US rates sooner rather than later, and which again would underpin the dollar. Today is the US Labor day holiday, so it will be thin and probably quiet, but we do get the global manufacturing PMI’s and the German GDP. Australia gets the TD Inflation data today (ahead of the RBA Meeting tomorrow and Q2 GDP, Thursday) and will look to the China PMI’s for direction, while NZ gets Q2 Terms of Trade. There is plenty of other data out this week, and with the Ukrainian issue thrown in, it could be a busy one.
|INDICES / COMMODITIES|
|ASX SPI: 5612|
|S+P Futures||1998||The S+P closed the week by gyrating around 2000 as it continues to consolidate its gains, underpinned by improving consumer sentiment data on Friday and looks as if it wants to make further progress in the days ahead. Importantly, the physical index closed the month above 2000 for the first time, at 2003, although it will be a quiet start to the week given the US Labor day holiday today. Caution is warranted though, as any major escalation of the situation in the Ukraine would see a run for cover, away from risk assets and would see the S+P come under pressure. The medium term indicators remain positive although the dailies are becoming somewhat overbought, but it looks as though we could see a slow grind towards the top of the long term channel, where resistance now lies at around 2015. On the downside, support is seen layered from 1990(200 HMA) and lower below 1985 down to 1970. Buying dips still seems to be the plan but it is very slow and there are better things to look at|
|DJI||17070||Ditto S+P. The DJI is consolidating below last week’s all time high of 17131 and looks likely to continue to do so early in the week. Buying dips appears to be the plan again, with a SL placed below 17000, but looking for a run above the high and on towards 17200|
|ASX SPI||5612||No Change. The SPI continues to consolidate close to 5600 (100/200 HMA), and more of the same looks to be in store for the coming session. The index did briefly reach 5626 on Friday but returned to close a little lower and remains pretty much within the recent range. We will probably hang close to 5600 early in the week, although a break of 5625 would then hint at a return to last week’s highs at 5645. A break of that level could see an acceleration as there is not a whole lot to stop it from heading, eventually, to 5750, which was the high seen in June 2008, so trading from the long side, buying dips, remains the preferred strategy. The downside has decent support at 55/75/90 and I think that buying dips, with a SL below 5560 is probably the play.|
|GOLD||1287||Gold remained relatively steady and within its recent range at the end of the week (1284/91:Friday) despite the flare up in the Ukraine. For the time being there are better things to watch, and I suspect 1280/1295 will continue to cover it unless the Ukrainian situation really does take a turn for the worse. I would not be trading from the short side for now in case that situation does escalate and the market decides to run for cover from risk assets such as stocks and into the safe haven of Gold which could then make a quick spike higher. Sidelined.|
|SILVER||19.45||Ditto Gold. Sidelined while it continues to hug a range close to 19.50. With the indicators running flat on most time frames, more consolidation either side of 19.50 looks to be the most likely outcome, although a break of 19.30 could see a quick run to 19.00. The topside is protected by the 100/200 DMA’s both lying at just below 20.00.|
|OIL (WTI)||95.80||WTI rose again on Friday, underpinned by the Ukraine issue and by improving US data which is seen underpinning demand, in taking out our initial resistance at 95.15 and then carried on to trade just shy of 96.00. A break of 96.00 would then lean towards the next target at 96.85(38.2% of 103.88/92.60) which, given the positive momentum, looks to me as though it could be reached in the session’s ahead. Beyond there would hint at a run towards descending trend resistance at around 97.80 albeit that this is some way off yet. The downside now looks supported at 95.20, and buying dips with stop loss below 94.70 appears to be the plan|
The Euro came under pressure again on Friday, although the EU inflation figure came in as expected at +0.3% and had little immediate effect. The dollar was assisted later in the session by some solid US consumer sentiment data as it made new trend highs against the Euro at 1.3130, where it finished the week.. Today is a US holiday (Labor Day), so it will be thin, but the focus now turns to the ECB on Thursday as we wait to discover what Mario Draghi has in store. It would appear that he is going to have to back up his recent rhetoric and announce an increased injection of liquidity, including the possibility of asset purchases through Quantitative Easing, although if he does not we could see quite a bounce in the Euro.
Aside from the ECB, there is plenty of other event risk this week, with the global Mfg PMI’s today (EU exp 50.8), the US ISM Mfg PMI (Tuesday), the ADP Jobs (Thursday exp +206K) and then the US Unemployment/NFP ( Friday: exp 6.1%/+220K) all being highlights. Ukraine also remains central to proceedings and any heightening in the tensions there would put the Euro under further pressure.
Technically, the Euro is under heavy pressure at the start of the week, although Monday could again see it supported above 1.3100 in the absence of any NY market. The first target is seen at 1.3104 (6 Sept ’13 low), although a break of 1.3100 would most likely see the Euro accelerate lower towards 1.3045(76.4% of 1.2754/ 1.3993), which if seen should prove strong support. The 4 hour charts do look as though they maybe running out of downward momentum in the short term, so I suspect that if we do head down here it will hold and bounce, at least at the first attempt. If wrong, look for a run towards 1.3000, which will also be heavily protected, but a break of which will open up the possibility of a decline towards the major Fibo extension, this being the 161.8% projection of 1.3993 to 1.3502, from 1.3700 at 1.2906 and then beyond that to the 9 July low 2013 at 1.2754. I noticed last week that Goldman Sachs lowered their 3, 6 and 12 month EUR/USD forecasts to 1.29, 1.25 and 1.20 respectively and would tend to agree with their view, with 1.2042, the July 2012 low, being the obvious long distance target.
On the topside, minor resistance is seen at 1.3150 and then at 1.3180 (100 HMA). I don’t think that we are going above here today, but the market is heavily short of the Euro and we could yet get a nasty squeeze. If so, a run above 1.3200 would then take the Euro back to the 200 HMA at 1.3220 and then to the Fibo resistance at 1.3237 (38.2% of 1.3411/1.3130). Beyond this would trigger stops, possibly taking the Euro back up to the top of the channel at Fibo resistance (61.8% of 1.3411/1.3130) at around 1.3300. Right now this looks unlikely.
Staying short and selling rallies remains the theme. So leave room to sell another squeeze back towards 1.3200, with a stop loss now lowered and placed above 1.3240. Keep an eye on US bond yields which remain soft (10y 2.34%) and are not following this dollar rally, while any failure to act by the ECB on Thursday could yet see a sharp reversal of this dollar trend.
Economic data highlights will include:
M: US Labor Day Holiday, German GDP, EU Mfg PMI’s, US Mfg PMI
T: EU PPI, US ISM Mfg PMI
W: EU Services/Composite PMI’s, EU Retail Sales, US factory orders, ISM Non Mfg PMI
T: German factory Orders, ECB IR Decision/Press statement, US ADP Employment Change, Jobless Claims, Trade balance, Markit Composite/Services PMI
F: German Industrial Production, EUGDP, US Unemployment/ NFP, Consumer Credit
The dollar finished August back above 104.00, after Friday’s bad miss on the Japanese Housing Starts (-14.1%) which placed downward pressure on JGB yields and added to the debate over the uncertain state of the economy. The markets are once more pricing in the possibility of more QE which will keep the Yen under pressure in the days ahead, with the BOJ due on Thursday although rates at this month’s meeting are likely to remain unchanged at 0.1%.
Although it is back above 104.00, the dollar did not reach the recent trend high of 104.26, which remains the immediate hurdle to overcome. A break would see a run up towards 104.50 beyond which would head on towards 105.00. Beyond that, as I have previously said, I suspect that we are eventually headed back up towards the 200 month MA at 106.50.
Minor support is now seen at 103.70 and then, below there, at last week’s lows just above 103.50. A break of 103.45/50, which looks doubtful, although if the Ukraine really heats up the Yen would again see strong demand, and which would then open up the chance of a test of the daily Tenkan/ Fibo support (38.2% of 101.50/104.26) at 103.25, below which would then head lower, towards 103.00.
Looking to buy dips appears to be the plan still, with a SL place below 103.25.
EURJPY: 136.70. Given the weakness in both the Euro and the Yen, the cross was relatively unexciting for much of last week, although it had its moments, with some nasty spike moves in either direction late in the week. After a Monday high at 137.66 it eventually broke below 137.00 on Thursday, falling sharply to 136.40, and after settling at around 136.70 it then had an equally sharp bounce and reverse to/from 137.20 on Friday, finishing back at 136.70. The longer term indicators are relatively neutral so I would avoid the cross for now, but a break of last week’s low may see a decline to below 136.00, and on towards Fibo support at around 135.60(38.2% of 94.10/145.68). The topside, for the time being, sees resistance, close by, at 136.85 (daily Kijun) and then at 137.40 (daily tankan) and at the daily cloud base at 137.60. Sidelined.
GBPJPY: 172.75. GbpJpy went in the opposite direction to EurJpy and finished the week 50 points higher, currently sitting below trend resistance at 172.85, a break of which, would suggest a run back towards 173.25/50. The downside sees support at the 100 DMA at 172.40 and then at the rising trend support at 172.00 which comes ahead of last week’s spike low to 171.60. The strategy of playing the cross from the long side remains the same. Look to buy dips, with a SL placed below 171.60, but seeking for a run up towards 173.50.
AUDJPY: 97.15 The cross has been on fire over the last couple of weeks and seems to have more room left on the topside, having closed the month just below the 97.25 trend highs. We have to go back to June 2013 to find it previously up here at these levels, and if we can break above 97.25, the next target looks like the 61.8% Fibo retrace of 105.42/86.40 at 98.05. For the time being, it may be that the 4 hourlies are running out of some steam so keep stops on long positions fairly tight. A break of the rising trend support, close by at 97.00 would hint at a drop back towards 96.75 and possibly to 96.50 (Daily Tankan).
Economic data highlights will include:
M: Nomura Mfg PMI
F: BOJ Monthly Economic Survey, Leading Economic Index
Cable had a choppy session but largely without direction as it traded once again either side of 1.6600, supported by positive flows into Cable when EUR/GBP headed lower, after the Euro came under pressure once the Ukrainian headlines began to hit the wires.
For the time being Cable is consolidating within the descending channel and looks fairly happy near 1.6600. The channel top is at 1.6630 and as long as we stay below there I think that the downside will eventually resume, albeit that progress will be slow while the cross continues to lend support as we head towards Thursday’s ECB Meeting, when Draghi could well cut EU rates. Thursday will also be the BOE meeting although no change is expected.
If Cable does head lower, the initial support is seen at around 1.6560 (minor) and then at the trend low at 1.6535. A break of this would most likely signal the next leg lower, initially for a run towards 1.6500 and then eventually towards the 24 March low at 1.6462, which is roughly where the channel base currently lies.
Above the channel top at 1.6630 (also the daily Tenkan) would open up 1.6650 and then 1.6685 (200DMA/23.6% of 1.7191/1.6535) although it appears unlikely at present.
Look for a day of 1.6560/1.6615 today with a preference to sell rallies. Watch out for the UK manufacturing PMI, and then the important Services PMI on Wednesday, ahead of Thursday’s BOE meeting.
Further out; keep an eye out for the Scottish Independence vote, due on 18 Sept. The campaign and consequent uncertainty is already helping to weigh on Cable, and in the event of a Yes vote for independence Sterling could see a steep selloff as Alex Salmond insists that Sterling will be the future currency of Scotland whether the UK Government likes it or not.
EURGBP: 0.7912. A big week ahead for the cross, with the ECB and BOE both due to meet and looking as though they are heading in opposite directions with regards to monetary policy. The pressure remains on the downside, and a break of 0.7900 would see a return to the recent low at 0.7873, below which would target the 17 Aug 2012 low at 0.7811 and then eventually the 23 July low at 0.7753. Overall, with the 4 hour and the daily indicators both pointing mildly lower again, looking to sell rallies remains the theme, with a SL placed above the 14 August high of 0.8035.
Economic data highlights will include:
M: UK Mfg PMI
W: UK Services PMI
T: BOE IR Decision, APP Facility
The dollar headed higher on Friday, but was unable to overcome 0.9184 where we now have a minor double top. We sit very close-by though, and if the Euro comes under pressure this will soon be taken out for a run to 0.9200, above which would open up the chance of a run back to the November 2013 high at 0.9249 and beyond towards the 50% pivot of 0.9838/0.8698 at 0.9265.
The downside sees minor support once more at 0.9160. I doubt we are headed below here today, but if wrong look for a dip back to 0.9140 and possibly to 9125. If seen, this should prove solid support, but a break would then see a return towards 0.9115 and 0.9100(daily Kijun/Tenkan) .
Trading from the long side still seems to be the plan although the 4 hour charts may be running out of some upside momentum and we may need a session or two before the dollar once again finds the legs to make any real gains. However note that US$/Chf closed above both the 100 & 200 WMA’s for the first time since June 2013. I think the dollar is headed higher, but maybe we need to wait for the ECB on Thursday and then the NFP on Friday for any real action.
Economic data highlights will include:
F: CPI, Industrial Production.
The Aud had a quiet end to the month, trading in a tight range, close to 0.9350. Interest should warm up significantly this week given the economic output that is due in the next few days and is opening with a minor gap lower this morning at around 0.9320. We get the TD inflation data and then both the Official and the HSBC China manufacturing figures today (exp NBS-Official @ 51.2) and then the RBA meeting tomorrow, at which Glen Stevens could take another opportunity to lament the high level of the Aud although the market is hearing him as a broken record on this subject and will most likely take no notice. Wednesday and Thursday bring us the Q2 GDP and Retail Sales respectively, with the market looking in particular at the GDP, where a soft reading is expected (3% yy, 0.4% mm) and which, if correct, could see the Aud come under some pressure once more.
The initial support is close by at the minor rising trend support at 0.9320, below which further bids would be seen at 0.9300. Below here seems a bit unlikely today unless the China PMI numbers are particularly weak, but if wrong look for a run back towards 0.9285 and eventually towards 0.9260.
Further out, a sustained break of the recent 0.9236 low would most likely see an acceleration towards 0.9200, below which the next target would be the 200 DMA/38.2% Fibo support of the rally from 0.8660/0.9505 at 0.9175. A break of this could see a deeper move towards minor support at around 0.9135 and then to 0.9100 and maybe to 0.9050 (50% pivot of 0.8660/0.9505.
On the topside, offers are seen nearby at the base of the daily cloud/daily Kijun at 0.9355/0.9360, and above here at 0.9373, where we have a minor double top, with further offers to be seen at 0.9380 (61.8% of 0.9472/0.9236). I doubt we are headed close to this today, but if incorrect, a break would see a bit of a squeeze towards 0.9400 and possibly to 0.9416 (76.4%).
Look for 0.9310/60 to cover it for now, with a preference to sell into strength, for a possible return to back below 0.9300 later in the week.
EURAUD: 1.4060. The cross fell 200 points last week to finish right on our target of last week at 1.4050 (November 2013 low). Further losses look to be on the cards, although 1.4000 will be strong support and lies just ahead of the 100 Week MA at 1.3970. The topside, has minor resistance at around 1.4130 and again at 1.4200. Trading from the short tide and selling into strength remains the plan, with a SL placed above the resistance levels.
GBPAUD: 1.7775. The cross is unchanged from the previous week after having recovered from a dip to 1.7700. Short term bullish divergence suggest that the cross could recover a little more, with the chance of a squeeze up towards the 200 HMA at 1.7800 and possibly to minor Fibo resistance at 1.7850. That is some way off though, and overall I prefer to sell into strength looking for an eventual resumption of the downtrend and a break 1.7700, below which we could be in for a run towards 1.7615 (61.8% of 1.6644/1.9185) and beyond there towards 1.7500.
Economic data highlights will include:
M: AIG Performance of Mfg index, TD inflation, NBS China Mfg PMI, HSBC China Mfg PMI, RBA Commodity Index
T: Building Permits, Current Acc, RB A I/R Decision/Statement
W: AIG Performance of Services index China Non-Mfg PMI, HSBC China Services PMI, Australian Q2 GDP
T: AIG Performance of Construction index, Trade Balance, Retail Sales,
The Kiwi, having made another attempt to head above 0.8400 on Friday, eventually gave up and headed lower finishing the week just above minor support at 0.8350.
Further pressure may be in store this morning when the NZ’s Q2 Terms of Trade are released, which are expected to be -2.3% following on from the previous reading of +1.8% and would only weigh in the Kiwi.
Below 0.8350, the next support is seen at around 0.8320/25, below which would take the Kiwi back to the trend low at 0.8310, which should act as strong support. A break of 0.8300 would hint at a run towards 0.8275(50% Fib of 0.7670-0.8839) and then 0.8242 (February 20 low).Below here would suggest further losses for a run to 0.8200 and lower towards the 5 Feb low (0.8187) and possibly to the 4 Feb low (0.8051).
On the topside, the top of the descending wedge is seen at 0.8400 (also daily Tenkan) a break of which would see stop triggered and likely to take the Kiwi a bit higher. I cannot see this happening today unless the trade data is vastly better than expectations, but if wrong, look for a squeeze up to 0.8430 (23.6% of 0.8514/0.8310) beyond which would target 0.8445 (daily Kijun) and the 200 DMA at 0.8465.
Economic data highlights will include:
M: NZ Terms of Trade
T: ANZ Commodity Price Index,
The DXY finished a strong week, on its highs at 82.73, having finished the month above the important Fibo resistance at 82.51 (61.8% of 84.75/78.88) and also above the 5 Sept 2013 top at 82.67.
Further gains look to be on the cards, and there is little to stop it heading to 82.98 (18 July 13 high). Beyond 83.00, the major descending trend resistance is currently at 83.30 and the next Fibo level at 83.37 (76.45 of 84.75/78.88). If we see it up here, it will probably be worth taking some profit, although the longer term trend does suggest an eventual run back towards the July 2013 high at 84.75.
Minor support is now to be found at 82.50 below which would head back to 82.25 and possibly below 82.00 to 81.80. I don’t really see it down here though and buying dips remains the preferred strategy, looking for further dollar rallies/Euro losses in the days and weeks ahead.
Source: FX Charts