Friday September 5, 2014 - 03:36:14 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 05-Sep-2014 -0336 GMT
The QE has arrived along with a surprise cut in the rates by the ECB. Eurozone loves it but Asia is not responding that enthusiastically, trading in a muted manner.
Dow (17069.58, -0.05%) remains in a pause mode for the second week in the narrow range of 17000-150, keeping the possibility of farther rise alive till now. But 17300-400 must be broken soon for the sake of the bulls.
Just a follow through buying today will take the Dax (9724.26, +1.02%) above 9800 and will signal potential new highs in the coming days. As our previous bearish bias is on the verge of reversal, if 9800 fails to push the index down, targets of 10000 and even 10600 will have to be considered.
The Shanghai (2312.57, +0.25%) is not far away from our target of 2350 now. Look for even 2400-2450, interrupted by shallow corrections. No one will be selling this market for some time. The Nikkei (15702.97, +0.17%) is also pausing a bit in its overall upmove that can target 16000, maybe even 16150-300 but it needs to break above 15900-50 soon.
The Nifty (8095.95, -0.23%) corrected for two days but the bullish momentum was not negated as it remained above the short term support area of 8050-40. The possibility of hitting 8190-8200 still exists as long as it stays above 8050.
Globally all commodities are trading low. Bearishness hovers and may continue for some more time.
Gold (1263.763) is trading lower and the overall trend remains down. It is currently testing crucial support on the weekly line charts near 1262, which may keep it ranged today but if it breaks it may head sharply downwards targeting 1250-1240. Near term remains bearish. Gold-WTI ratio (13.36) is stable below resistance at 13.5 and if it breaks 13.5 may again target 14 on the upside. Good resistances coming up in the 13.5-14-15 region.
Silver (19.096) came off from the 13-day MA near 19.38 and is firmly maintaining the downward channel targeting 19-18.5 in the near term. The support coming up near 19 may push up prices towards 20-20.5 or keep it ranged in the 19-20 region for a few weeks. A break below 18.5 cannot be seen just now.
Copper (3.1535) is ranged in the 3.18-3.12 region for now and seems to have entered into a short term sideways consolidation while in an overall near term uptrend.
Brent (101.77) is trading low. Bearishness prevails in the near term. It seems to have made a bottom near 100.17 on 2-Sep-14 but confirmation can only come if we see a close above 103 today. While below 103, we may expect it to again test levels of 100 and 99.6 on the downside. Near term trend remains down.
Nymex WTI (94.38) is held well below the resistance near 96.12 and while below 96 there is a fair possibility of a fall towards 92. A rise above 96-97 region is required to negate 92 on the downside and look towards a fresh rise. Till then near term remains bearish. Brent-WTI spread (7.31) is in the pause mode since the last two sessions but may soon see a fall towards 6.
ECB has brought the Euro to its knees (accompanied by Sterling) and itís hard to see any bottom with the 2013 bottom less than 200 pips away. Staying with the Dollar strength is the only way for now.
The Euro (1.2933) was nearly wiped out by the ECB actions and broke below 1.30. A break below the minor support at 1.2920 may take it down to 1.2780-40. At best, the bulls can expect a sideways price action for a few days.
Dollar-Yen (105.34) has hit a fresh 6-year high at 105.77 and looks all set for a rally towards 108-109 as discussed earlier. Keep an eye on whether or not Nikkei is able to break above 16150-300 or not. The Euro-Yen Cross (136.25) failed to manage that small distance to 1.3850-65 and crashed to 136 on the back of Euro massacre. Below 136, it may be dragged down to 134.70-50 now.
The Pound (1.6311) achieved our target of 1.6360 and then some as the ECB kept the rates unchanged. With this strong bearish momentum, not only 1.6250 but even 1.61 can be seen very soon.
The Aussie (0.9340) is the only currency that stands firm against the Dollar and that is something in the current context of the currency world. It is gathering strength from the strong Chinese rally and may continue trading in the range of 0.92-0.94 some more.
Dollar-Rupee (60.36) may break the support area around 60.35 today and test 60.10-00. Trading below 60.30 in the opening hour would ensure the weakness but intraday price action may be grinding.
Disarray in the European bond markets. US Yields rise, but face Resistance.
Draghi surprised the market and weakened the Euro (1.2935) by lowering interest rates to 0.05% and cut deposit rates further to -0.2%, from -0.1% earlier. It will start ABS (asset backed securities) purchase in October. There is debate on how large or effective this can be given that the size of the ABS market is small in Europe.
The ECB projects GDP growth of 0.9% in 2014, 1.6% in 2015, both down from forecasts put out in June. The 2016 forecast has been revised upwards to 1.9%.
Our contrarion view of a rise in European yields is mixed. The German-US 2Yr Spread (-0.61%) plummeted, but has now hit a downward channel Support. See http://www.kshitij.com/graphgallery/eurusddiff.shtml#eurusd
But, the KSHITIJ E4 10Yr Composite (1.1795%) is indeed finding some Support near 1.1690%. The French 10Yr (1.308%) has also moved up from 1.25%. On the flip side, the Spain-Germany 10Yr Spread (1.1765%) has actually fallen further, which is contrary to expectation.
US Yields have moved up a decent bit in the meanwhile. The 5Yr (1.72%), 10Yr (2.45%) and 30Yr (3.21%) are up from 1.68%, 2.40% and 3.14% respectively, with the 30Yr rising the most. This Curve steepening has come after a long time. But, 5Yr now faces triangle resistance near 1.73% while the 2Yr (0.53%) still faces crucial Resistance near current levels. Need to see if it will break or not. Take a look at
The Indian 10Yr GOI (5.5221%) is hesitating to fall below 5.50% and could well see some uptick toward 8.55% before the Support is eventually broken.
12:30 GMT or 18:00 IST US NFP
...Expected 222 K ...Previous 209 K
12:30 GMT or 18:00 IST US Unemployment Rate
...Expected 6.10 % ...Previous 6.20 %
12:30 GMT or 18:00 IST CA Labour Force
...Expected 10.3 K ...Previous 41.7 K
14:00 GMT or 19:30 IST CA PMI
...Expected 55.7 ...Previous 54.10
Australia Trade Balance
...Expected -1.77 A$ Bln ...Previous -1.56 A$ Bln ...Actual 1.36 A$ Bln
...Expected 0.50 % ...Previous 0.50 % ...Actual 0.50 %
...Expected 0.15 % ...Previous 0.15 % ...Actual 0.05 %
US ADP Emp
...Expected 216 K ...Previous 212 K ...Actual 205 K
US Trade Balance
...Expected -42.50 $ Bln ...Previous -40.81 $ Bln ...Actual -40.55 $ Bln