Πρωινό Βriefing Αγορών

Τα παγκόσμια δεδομένα υποστηρίζουν το δολάριο

- η Ιαπωνική βιομηχανική παραγωγή πέφτει και ο γερμανικός πληθωρισμός επιβραδύνεται

Τα στοιχεία για τις ΗΠΑ επίσης υποστηρίζουν το δολάριο, με

- το ADP για την απασχόληση να είναι κάτω από τις προβλέψεις, αλλά να εξακολουθεί να είναι πάνω από τις 200k νέες θέσεις εργασίας

- το ΑΕΠ των ΗΠΑ για το δεύτερο τρίμηνο Q2 να υπερβαίνει κατά πολύ τις εκτιμήσεις –το ΑΕΠ για το δεύτερο μισό του έτους 2Η 2013 και το 1ο τρίμηνο του 2014 αναθεωρήθηκε προς τα πάνω

- το PCE εκτός ενέργειας και τροφίμων να βρίσκεται στο 2%, στον στόχο δλδ του FOMC- κάτι που σημαίνει οτι η Fed έχει χτυπήσει 1 από τους 2 στόχους

Η δήλωση του FOMC αναγνωρίζει ότι ο πληθωρισμός ήτανε υψηλός, αλλά από την άλλη η αδυναμία της αγοράς εργασίας αφήνει ακόμα περιθώρια ως προς το timing για να άνοδο των επιτοκίων

- νομίζω ότι το πρόγραμμα της αγοράς ομολόγων και MBSs από την Fed θα φτάσει στο τέλος του βάσει του χρονοδιαγράμματος τον Οκτώβριο και σε περίπτωση που τα δεδομένα συνεχίζουνε να βελτιώνονται, πιθανό να αρχίσουμε να συζητάμε και πιο συγκεκριμένα για το χρονοδιάγραμμα της πρώτης αύξησης των επιτοκίων

- το USD πιθανό να συνεχίσει να υποστηρίζεται όσο προσαρμόζεται σε αυτές τις προβλέψεις για τα επιτόκια

Σήμερα:

- Ευρωζώνη: ο γερμανικός δείκτης ανεργίας για το μήνα Ιούλιο και η ανεργία της Ευρωζώνης για τον μήνα Ιούνιο

- Ηνωμένο Βασίλειο: ο δείκτης δείκτη τιμών κατοικιών Nationwide φαίνεται να επιβραδύνεται, κάτι που μπορεί να κρατήσει το GBP σε πτωτική τάση

- ΗΠΑ: Ο δείκτης Chicago PMI για τον Ιούλιο αναμένεται να αυξηθεί και οι αιτήσεις επιδομάτων ανεργίας αναμένεται να είναι οριακά ανοδικές.-αυτό δεν είναι πιθανό να εκτροχιάσει την ανοδική τάση του USD

- Καναδάς:το ΑΕΠ του Μαίου αναμένεται να επιταχυνθεί, κάτι που θα μπορούσε να προκαλέσει ρευστοποιήσεις στο USD / CAD

Market preview - Thursday 31/07/2014

Global data, FOMC support firmer dollar The verdict from yesterday’s data was unanimous: it all supports a stronger dollar. Data from Japan, Europe and the US agreed.

As I mentioned yesterday, Japanese industrial production plunged in June, a stunning contrast to the surge in output in neighboring South Korea during the month, so it can’t be put down to a sluggish world economy. Then German inflation slowed in July, signifying a poor supply/demand balance in Europe’s largest economy and suggesting that the Eurozone inflation too may move lower, a negative for the euro.

The US data though was the clincher. The ADP employment report was lower than expected at 218k vs a market forecast of 230k, but the figure remains over 200k and in any event some payback from the previous month’s 281k was inevitable. Then came the GDP figures. Not only was Q2 far above estimates (+4.0% qoq SAAR vs forecast +3.0%) but also Q1 and all of the second half of last year were revised up as well, meaning that 2013 yoy real GDP growth was revised up to 3.1% from 2.6%. On top of which, the Q2 core PCE deflator grew 2.0% annualized, meaning the FOMC has hit one of its two targets.

The better economy and higher inflation were reflected in the FOMC statement. There were no significant changes in their policy guidance, but the tone of the statement was nonetheless slightly more hawkish, in line with the improvements in the economy. They noted that inflation is moving towards their target and that labor conditions had “improved.” But on the other hand, they emphasized that other indicators besides the unemployment rate show continuing difficulties in the jobs market. The market focused on that point and interpreted the statement as dovish, which I think is a misinterpretation. It looks to me as if the Committee is trying to play down the improvement in the unemployment rate and instead focus on other indicators that still show a difficult labor market to enable them to keep their flexibility about the timing of a rate hike. For example, there may be more emphasis from now on the broadest measure of unemployment, the U6 measure, which includes people “marginally attached to the labor force” as well as those with part-time jobs who want to work full-time but can’t find full-time jobs. This version remains quite elevated.

Philadelphia Fed President Plosser dissented, as he thought the statement did not “reflect the considerable economic progress that has been made toward the Committee’s goals.” There are likely to be more hawkish dissents as time goes by.

Looking at the improvement in the US economy and the changes in the statement, it appears to me that the FOMC is on course to finish tapering off its bond purchases as scheduled in October. Moreover, if the next several labor and inflation reports continue to move in the same direction that they have been moving, we could soon see more concrete indications of when the Fed will begin raising rates. So far the FOMC’s own forecast is that rate hikes are likely to begin in February next year, vs the market’s forecast of August. I think the market will have to move closer to the FOMC’s way of thinking and that this change in market view will continue to provide support for the dollar going forward.

The data and the FOMC report bolstered the dollar against almost every currency we track, both the G10 and EM currencies. EUR/USD is opening in Europe below 1.34 for the first time since last November, while GBP/USD is opening lower for the 10th day out of the last 15. Turnover increased notably and there was apparently heavy demand for currency options in the US as investors think we could be entering into a period of greater volatility. Although as I noted recently the daily ranges are some of the narrowest on record, on the other hand looking at the rates from the beginning of the month to the end, it appears that currencies are starting to trend. The range for EUR/USD in July as a whole has been 2.5%, which is more than half the year’s range of 4.7%. The July range is not as much of the year’s range for USD/JPY or GBP/USD, however. EUR/USD may finally be starting to show the effects of the divergence in monetary policy between the ECB and the Fed.

Today: During the European day, the UK Nationwide house price index is forecast to have slowed to +0.5% mom in July from +1.0% mom the previous month. GBP has been weak recently and a figure like that could be an excuse for further selling. Germany’s retail sales are also coming out and the forecast is for a rebound in June’s figure. We also have the German unemployment rate for July and Eurozone’s unemployment rate for June. Both rates are expected to have remained unchanged, at 6.7% and 11.6% respectively. The bloc’s CPI estimate for July is also coming out and is expected to remain at June’s 0.5% yoy. Yesterday’s German CPI had only limited impact on the euro so this is likely to too if it is within estimates.

From Canada, the GDP for May is expected to have increased by 0.4% mom, an acceleration from +0.1% in April, driving the yoy rate up to 2.3% from 2.1%. That could cause some profit-taking in USD/CAD.

In the US, the Chicago purchasing managers’ index for July is forecast to have slightly increased. The initial jobless claims for the week ended 26th of July are also coming out and the forecast is for the figure to increase marginally. These figures are not dramatically better but as long as they are not worse, they should not derail the dollar from its upward trajectory, in my view.

Midday Comment - Wednesday 30/07/2014

USD/SEK

·         The dollar traded unchanged or higher against most of its G10 counterparts during the European morning Wednesday. It was higher against SEK, AUD, JPY and CAD, in that order, and was virtually unchanged against NOK, EUR, NZD, CHF and GBP.

·         SEK plunged after Sweden’s preliminary Q2 GDP grew +0.2% qoq, disappointing the market with its below consensus reading. Although a rebound from the final Q1 -0.1% qoq, the worse-than-expected figure send the krona down approximately 0.5% against the dollar to trade at 6.8900 at the time of writing. On top of the recent rise in the unemployment rate to 9.2% and the decline in the nation’s consumer confidence, the poor GDP growth adds to the growing body of evidence that the economy is not as strong as the market was expecting.

·         EUR/USD dropped below 1.3400 during the European morning for the first time since 13^th of November, ahead of the preliminary German CPI for July and amid expectations of strong US data coming later in the day. The first indication of a decline in the German inflation rate came several hours before the country’s headline figure. The CPI for the region of Saxony slowed to 0.8% yoy in July from 0.9% yoy the previous month, increasing the likelihood of an overall slowdown in Germany’s consumer prices. However, expectations for robust US data are most likely the main reason for the tumble of EUR/USD. If the forecasts are met, I would expect the rate to slide further and see as a first target the 1.3350 zone in the near future.

·         USD/SEK rallied during the European morning Wednesday, breaking above 6.8735 (resistance turned into support), the highs of the 3^rd of July. Such a move confirms a forthcoming higher peak and could pave the way towards the 6.9200 (R1) zone. As long as the rate is trading above the blue uptrend line and above both the moving averages, I see a positive near term picture. Nevertheless, zooming on the hourly chart, the 14-hour RSI lies within its overbought field and is pointing down, thus I would expect a pullback before the longs take control again. In the bigger picture, the major upside path is in force since the 19^th of March, while the 50-day moving average lies above the 200-day one and is pointing up. This amplifies the case for the continuation of the longer-term uptrend.

·         Support: 6.8735 (S1), 6.8070 (S2), 6.8610 (S3)

·         Resistance: 6.9200 (R1), 7.0000 (R2), 7.0775 (R3)

Πρωινό Briefing Αγορών - Τετάρτη 30/07/2014

• To USD παραμένει καλά υποστηριγμένο ενώ την ίδια ώρα οι ευρωπαϊκές αποδόσεις των ομολόγων φτάνουν σε ιστορικά χαμηλά

- το EUR / USD επίσης κάνει χαμηλά για το 2014 – η τεχνική του εικόνα του δολαρίου έναντι και ευρώ και γιέν φαίνεται αρκετά καλή

- το δυνατό δολάριο ‘’χτυπά’’ τον χρυσό παρά την αύξηση των εντάσεων στην Ουκρανία- σημάδια τα οποία δεν είναι καλά για τον χρυσό γενικότερα

• Η Ιαπωνική βιομηχανική παραγωγή καταρρέει τον Ιούνιο

- Τόσο η εγχώρια ζήτηση όσο και αυτή του εξωτερικού είναι χαμηλή, κάτι που δείχνει ότι η BoJ θα πρέπει να αποδυναμώσει το γεν αργότερα μέσα στο έτος = αρνητικό  για το JPY

• Σήμερα:

- Ευρωζώνη: το Γερμανικό CPI (δείκτης τιμών καταναλωτή) αναμένεται να επιβραδυνθεί τον Ιούλιο, γεγονός που εγείρει ερωτήματα σχετικά με την υγεία της μεγαλύτερης οικονομίας της Ευρωζώνης = αρνητικό  για το EUR

- Υπόλοιπη Ευρώπη: το ΑΕΠ της Σουηδίας για το Q2 και ο δείκτης AKU ανεργίας για την Νορβηγία

- ΗΠΑ: η έκθεση ADP αναμένεται στις +230 k νέες θέσεις εργασίας δείχνοντας πως η αγορά εργασίας παραμένει σταθερή = θετικό για το USD

- Οι flash εκτιμήσεις για το αμερικάνικο ΑΕΠ για το Q2 αναμένεται να δείξουν αύξηση κατά +3,0% σε τριμηνιαία βάση SAAR (seasonally adjusted) έναντι -2,9%.

O δείκτης επίσης PCE (personal consumption expenditure) προβλέπεται να αυξηθεί στο 1,9% σε ετήσια βάση από 1,2% - αυτό είναι πολύ σημαντικό καθώς είναι ο αγαπημένος δείκτης πληθωρισμού της Fed ο οποίος φαίνεται να πλησιάζει τον στόχο του, κάτι που σημαίνει με τη σειρά του ότι ασκείται μεγαλύτερη πίεση στη Fed να αυξήσει τα επιτόκια πιο γρήγορα = θετικό για το USD

- το FOMC ολοκληρώνει σήμερα τη διήμερη συνεδρίαση του- δεν θα ακολουθήσει συνέντευξη τύπου και η δήλωση θα περιλαμβάνει τα πιο πρόσφατα οικονομικά στοιχεία τα οποία φαίνονται πιο ισχυρά, κάτι που σημαίνει αντίστοιχα και πιο θετικό τόνο για το USD

Market analysis also in Greek !

Daily market bullet points will be posted in Greek !

Volatility Collapsing !

·         Volatility continues to collapse   Yesterday’s range for EUR/USD was a mere 0.12%, the second-narrowest range since the beginning of the euro, excluding New Year’s day (the /narrowest range was back in April). It’s not just the euro, either. During the same time period, USD/JPY has had a narrower range only twice. That’s pretty astonishing when you consider the number of big announcements coming out this week, including the FOMC meeting, US NFP, US Q2 GDP and Eurozone inflation data. Currencies only move when there is a disagreement on the price – it looks like people have pretty well reached agreement on the value of the major currencies.

·         In fact when we look at the OECD measures of purchasing power parity (PPP), EUR is only 4.2% overvalued vs USD and JPY is only 1.5% overvalued. That suggests the low volatility in these two currencies may be appropriate – they are trading around their fundamental values. (Based on CPI and PPI measures however they are less fairly valued.) In that case, perhaps we should listen more to the central bank governors of New Zealand and Australia, who have been complaining bitterly about the overvaluation of their currencies (overvalued by 19.6% and 29.6%, respectively, on the OECD measure). But in that case we would all be short CHF, 35% overvalued, and NOK, 31.2% overvalued. And GBP is 15.3% overvalued vs USD on that measure, not so far behind NZD.

·         The only thing that these measures seem to agree on is that USD is undervalued. The only measures on which the dollar is overvalued are the CPI and PPI methodology vs SEK and JPY. So in theory the dollar should rise. However, we know that although currencies do generally mean revert towards PPP, it can take a long long time.

·         In any case, the drop in volatility has had a big impact on interbank trading volumes – or is it the other way around?  Central banks yesterday reported the results of their twice-yearly survey of turnover in the FX market. The average daily currency volumes in most key financial centers around the world rose or were little changed in April from October, but were far below the year-earlier levels. Daily currency trading in London for example rose 7% in April this year from October, but trading in the spot market was down 21% from a year ago.

·         As for the indicators, US pending home sales fell unexpectedly in June, raising doubts over the housing market recovery. Following last Thursday’s disappointing reading in new home sales for the same month – a drop from an initially reported six-year high in May to just above the low for the year — yesterday’s figure confirmed Fed Chair Yellen’s remarks before the Senate Banking committee earlier this month about the overall slowdown in the housing sector. So although it’s likely that the FOMC will upgrade their view of the economy in this month’s statement following the meeting, the Committee is still likely to include warnings about housing that could hedge the upward revision to the view that I expect. In June they said that “the recovery in the housing sector remained slow.”

·         In Japan, retail sales fell more than forecast in June, suggesting that the rebound from the hike in the consumption tax is going more slowly than expected. At the same time, the unemployment rate unexpectedly rose, although the job-offers-to-applicants ratio rose slightly too. The struggling Japanese economy and PM Abe’s slumping popularity rating suggest that the Bank of Japan is going to have to get busy later this year expanding its quantitative easing, which could put downward pressure on the yen.

·         Today:  There is a relatively light calendar today. We have no major events or indicators coming out from the Eurozone.

·         In the UK, mortgage approvals for June are expected to rise slightly after four consecutive declines. The modest increase from the lowest level this year may confirm that buyers are concerned about paying the current high prices. 

From the US, S&P/Case-Shiller house price index is forecast to show that the pace of increase in house prices accelerated in May from the previous month.

Boeing Co.

·         The dollar traded unchanged against most of its G10 peers during the European morning Monday in the absence of major economic events. The greenback was marginally lower only against SEK and CHF. 

·         Russia's Foreign Ministry has criticized the European Union for its decision last Friday to impose additional sanctions, saying the "irresponsible" move would "be greeted with enthusiasm by international terrorists."  

·         The additional sanctions will hurt Russia's economy, but the consequences will probably be felt by Western companies as well. One of the firms that will be most likely affected is British oil and gas company BP, which holds a 19.75% stake in Rosneft, one of the sanction target entities. At the time of writing, BP shares are trading down approximately 0.50% from their opening level.

·         Russia’s Foreign Minister Sergei Lavrov said that Russia will not impose tit-for-tat measures or act "hysterically" over Western economic sanctions. Nonetheless, there is a risk that Russia could react against western sanctions by blocking the sale of metals that are widely used by car and aerospace companies. This could hit US aerospace giant Boeing, which acquires much of its titanium from Russia. Being forced to find another supplier quickly could increase its costs unexpectedly and hurt the company’s revenues.

·         Boeing Co. fell sharply on Friday, breaking the lower boundary of the trading range it has been trading since the 24^th of June (between the 126.00 and 130.00 barriers). Such a move reinforces the near term downtrend and flips the outlook back to the downside. However, taking into account that the price is approaching a strong support zone, near 122.00 (S1) and also bearing in mind the hourly momentum signs, I would expect some short-covering or a minor bounce before sellers regain control. A possible bounce could test, as a resistance this time, the 126.00 (R1) barrier, which coincides with the 200-day moving average (see daily chart). On the 1-hour chart, the 14-hour RSI exited its oversold field, while the hourly MACD shows signs of bottoming and could move above its trigger line within the day. In the bigger picture, as long as the price remains below the 200-day moving average, the overall outlook remains mildly bearish. A weekly close below the support barrier of 119.00 (S2) is likely to complete a failure swing top formation and could signal the beginning of a new downtrend.

·         Support: 122.00 (S1), 119.00 (S2), 113.00 (S3)

·         Resistance: 126.00 (R1), 130.00 (R2), 134.00 (R3)

Friday 25/07/2014 - Midday comment

·         The dollar traded unchanged or higher against most of its G10 peers during the European morning Friday. It was higher against NZD, CAD, CHF, EUR, JPY and GBP, in that order, and was virtually unchanged against AUD and NOK. The greenback was lower only against SEK.

·         The Germany Ifo Business Climate Index fell to 108.0 in July from 109.7 the previous month. This was the third consecutive drop in the index, since the geopolitical tensions are most likely impacting the German economy. The expectations index also declined for a third successive month, to reach its lowest level since August 2013. EUR depreciated approximately 0.15% at the release of the news, giving back all the gains that it made after Thursday’s strong PMI readings.

·         The first estimate of UK GDP for Q2 was +0.8% qoq, the same pace as the final Q1 figure and in line with the market forecast. Sterling strengthened slightly at the release but gave away all the gains immediately, as at this stage data content in the first estimate is less than half of the total required for the final Q2 output figure. GBP/USD continued to weaken, probably due to expectations of a rebound in the US durable goods orders for June, coming out later in the day.

·         Copper has been the best-performing asset this week of the currencies and commodities that we track on a daily basis. The higher-than-expected rise in China’s PMI has pushed copper higher. The futures today continued yesterday’s rally and at the time of writing the price is trading marginally below the resistance barrier of 3.2775 (R1). During the Asian morning Thursday, the metal emerged above the 3.2245 hurdle, signaling the completion of an inverted head and shoulders formation and reversing the prior down path to an uptrend. The price structure remains higher highs and higher lows and a clear move above the 3.2775 (R1), is likely to target the resistance zone of 3.2920 (R2). Nevertheless, although the shot-term picture remains to the upside, zooming on the 30-minutes chart, the RSI fell below its 70 level, while negative divergence is identified between the MACD and the price action. This raises concerns for a possible corrective wave before the longs take over the reins again, as we expect.

·         Support: 3.2670 (S1), 3.2515 (S2), 3.2335 (S3)

·         Resistance: 3.2775 (R1), 3.2920 (R2), 3.3000 (R3)

Friday 25/07/2014 - Market Update !

Mixed messages from the data It’s hard to know what to make of yesterday’s data. On the one hand, the Bundesbank was telling us recently that growth was slowing in Germany, but on the other hand, yesterday’s July PMIs for Europe – particularly Germany -- exceeded expectations. There was a similar mixed picture in the US. On the one hand, jobless claims in the week of July 19 plummeted to the lowest level since 2006, both for the latest result and the 4-week moving average. You might expect that better employment conditions would mean a better housing market as people who are more confident about their futures go out and buy homes, but on the contrary: the previously reported 19% spike in new home sales to 504,000 in May saw a record revision down all the way to 442,000, and then June fell further to 406,000, the lowest figure since March. All told, the data seems to have clouded the picture more than clarified it. The market’s conclusion though seems to have been to take it all positive: Bund and Treasury 10-year yields both rose about 3 bps, while Fed Funds expectations for three years from now rose 6.5 bps. The higher US rate expectations supported USD, which was unchanged to higher against all the G10 currencies except SEK. AUD dropped the most of any of the G10 currencies, with no particular news behind the fall, perhaps just profit-taking after the recent rise. The rise in SEK was fairly inexplicable as it follows the higher-than-expected unemployment and fall in producer prices for June that were announced yesterday.

Japan’s inflation seems to be cooling. The national CPI for June slowed to 3.6% yoy from 3.7% in the previous month (although this was higher than the forecast of 3.5%), while the Tokyo CPI eased to 2.8% yoy from 3.0%. On the other hand, the core CPIs (excluding fresh food and energy) were both higher: national rose to 2.3% yoy from 2.2% while Tokyo rose to 2.1% from 2.0%, suggesting that firms may still be passing some of the increase in the consumption tax onto consumers. Imported inflation, particularly with regards to energy prices, should cool as the yen is no longer falling so much on a year-on-year basis. The yen’s trade-weighted index was down around 4% yoy in July, vs -13% in January. The Bank of Japan’s base scenario is that inflation will pick up towards the end of the year, but if this doesn’t happen – as seems likely – they may have to take further easing steps. The yen is likely to weaken further as more and more investors anticipate such a move, in my view.

Today: There are several major indicators out today. The German Ifo current assessment index and expectations index are both expected to decline, which could weaken EUR/USD. The Ifo index is in contrast to Thursday’s positive PMI figures, perhaps because the Ifo incorporates more recent data on the impact that sanctions on Russia are likely to have on the German economy.

In the UK, the nation’s preliminary GDP for Q2 is estimated to have remained unchanged in pace at 0.8% on a quarterly basis. This will drive the yoy rate up to +3.1% from +3.0%. Such a strong growth figure could be a reason for the pound to regain momentum following Thursday’s weak retail sales data.

>From the US, durable goods orders for June are expected. The headline figure is forecast to rise +0.5% mom, a turnaround from -0.9% mom the previous month, likewise, durable goods excluding transportation equipment are estimated to have risen +0.5% on a mom basis, after May’s 0.0% mom. Overall these figures are positive and the dollar could strengthen if they come in as anticipated.

We have no speakers scheduled on Friday. 

Thursday 24/07/2014 - Midday Comment

·         The dollar traded mixed against its G10 counterparts during the European morning Thursday. It was higher against NZD, AUD and GBP, in that order, while it was lower against EUR, CHF and CAD. The greenback was virtually unchanged against NOK, JPY and SEK.

·         Eurozone’s economic growth accelerated in July according to the strong readings of the bloc’s PMIs. Eurozone preliminary composite PMI, covering both the manufacturing and service sectors, reached a three-year high of 54.0. The strong figures were boosted from the better-than-expected prints from the bloc’s two largest economies, France and Germany. Both manufacturing and service-sector PMIs were higher, with the latter having the larger gains. However, going forward the effects of Russia’s recent sanctions may be apparent in the German PMIs due to the strong ties between the two countries. EUR rebounded at the release of the news, staying above its 21^st of November lows of 1.3400 but finding resistance at 1.3485.

·         The British pound weakened during the European morning after the UK retail sales data for June fell short of expectations. Retail sales excluding gasoline fell 0.1% mom in June, way below the forecast of a turnaround (+0.3% mom). The slowdown in growth pushed Cable lower by approximately 0.20% at the release.

·         AUD/NZD surged during the Asian morning Thursday, breaking two resistance barriers in a row, but the rally was halted marginally below the obstacle of 1.1015 (R1). I would see the 1.1015/30 zone as a strong resistance zone. Taking into account that our hourly momentum studies shows signs of topping, I would expect the forthcoming wave to be to the downside, perhaps near the blue trend line and the 1.0910/35 support zone. Nevertheless, the price structure remains higher highs and higher lows above the blue uptrend line and above both the moving averages. Hence, I see a positive near-term picture and I would consider any possible future declines towards the 1.0910/35 support as renewed buying opportunities.

•                 Support: 1.0935 (S1), 1.0910 (S2), 1.0850 (S3)

·         Resistance: 1.1015 (R1), 1.1030 (R2), 1.1110 (R3)

Thursday 24/07/2014 - Market Overview

·         RBNZ, PMIs in the spotlight  Once again there was a decent amount of news that resulted in relatively little movement. EUR/USD had the second-smallest range of the year at 0.14% (lowest was 0.11% on April 18th). The market ignored reports that two Ukrainian fighter jets were shot down, apparently from the Russian side of the border, according to the Ukrainian government. Gold was lower despite the news. The only G10 currencies to weaken notably against the dollar were NZD (see below) and GBP, which fell yesterday on the dovish implications of the Bank of England minutes. On the other hand, AUD strengthened after the provisional HSBC/Market China manufacturing PMI for July rose to 52.0 from 50.7, beating expectations of 51.0.

·         The Reserve Bank of New Zealand (RBNZ) raised its official cash rate (OCR) by 25 bps, as was generally expected, but said it would pause for “a period of assessment before interest rates adjust further towards a more-neutral level.” In other words it will continue to hike, but first wants to see how the 100 bps of hikes so far are affecting the economy. The RBNZ had harsh words to say about its currency.  "Over recent months, export prices for dairy and timber have fallen, and these will reduce primary sector incomes over the coming year. With the exchange rate yet to adjust to weakening commodity prices, the level of the New Zealand dollar is unjustified and unsustainable and there is potential for a significant fall," the RBNZ said. It’s hard to argue with their contention that the currency is overvalued; on both CPI and PPI basis it’s the most overvalued of the G10 currencies (33% and 40% overvalued vs USD, according to Bloomberg calculations). The OECD’s calculations put it in the middle of the pack, but even there it’s 21% overvalued, according to their calculations (the most overvalued on this methodology is CHF at +35%, while the yen is merely +2% overvalued). In general, currencies do tend to revert back towards their purchasing power parity (PPP) values, but it can take a long, long time. So long as the RBNZ keeps real interest rates the highest among the G10 (indeed, is the only central bank with a positive real official rate), NZD should be well supported.

·         Japan’s trade balance continued to worsen. The deficit for June was JPY 1.08tn (SA), vs JPY 862bn (SA) in June. Although this was better than market estimates, the NSA figure for the trade balance was worse, giving a mixed picture. The problem was exports, which fell 2.0% yoy instead of rising 1.0% as expected, while imports were in line with estimates at +8.4% yoy. Japan’s exports are not benefitting from the weaker yen, while of course import prices have risen in line with the drop in the currency. This could be the fatal flaw in Abenomics:  the weaker yen winds up reducing aggregate demand by reducing households’ purchasing power without boosting exports, thus causing further deflation! The Japan manufacturing PMI fell to 50.8 from 51.5. I remain bearish on the yen, although it’s hard to say what will be the catalyst to push it out of its recent range.

·         Today:  The PMIs will take center stage during the European day. Eurozone’s preliminary PMIs for July will be released just after the two largest countries of the bloc, Germany and France, release their figures for the same month. Both the manufacturing and service sector PMIs for the Eurozone are expected to decline slightly, reflecting the overall slowdown in growth and economic turbulence in the region. That could add to the sense that the Eurozone’s only hope is a weaker currency and push EUR down slightly.

·         Sweden’s official unemployment rate for June is coming out and the forecast is for the rate to increase to 9.0% from 8.0%, consistent with the increase in the Public Employment Service (PES) unemployment rate earlier this month. The weaker labor data will most likely offset the recent promising rise in the CPI --following the shock in the unexpected official rate cut by Riksbank— of a moderate rebound in the Swedish economy and could be negative for SEK.

·         In the UK, retail sales excluding gasoline are expected to rise 0.3% mom, a turnaround from -0.5% mom in the previous month. That should be positive for the pound.

Later in the day, we get the US preliminary Markit manufacturing PMI for July (expected to rise) and new home sales for June (expected to fall). The initial jobless claims for the week ended 19th of July are forecast to rise marginally.

Wednesday 23/07/2014 - Market Preview!

·         Talk is cheap; the price of action is colossal  That line, from the play Marat/Sade, pretty much sums up the European position on Russia. Many government officials have been talking harshly about the need to penalize Russia for its alleged involvement in the downing of the Malaysia Air plane over Ukraine, but when push came to shove, nobody shoved. The EU increased the list of people and companies facing asset freezes and travel bans, but said they would consider tougher measures only if Russia doesn’t cooperate in the investigation of the plane. The European Commission is now expected to publish tomorrow a list of harsher economic and trade sanctions that the EU could implement if things don’t go well.

·         This may not have been a great day for standing up for principle, but markets are generally apolitical. The fact that tensions were lowered switched sentiment from “risk off” to “risk on.” Stocks in Europe recovered smartly and the rally carried over into US and Asian equities too, while gold and Bund prices fell. The risk-sensitive commodity currencies were the best performing G10 currencies while the safe-haven CHF was the worst.

·         Against what should have been a favorable background for European assets and hence EUR, it’s particularly notable that EUR/USD is opening in Europe below 1.3500 for the first time since 3 Feb (and even that was only one day; the last time it was down here for any sustained period of time was last November). The weakness seems to be caused by the view that European growth has stalled and with the ECB on hold, the only thing that can rescue Europe is a weaker euro. For example, even while the IMF declaring that Spain has “turned the corner,” the country’s exports are falling and the trade deficit is widening out again, endangering the recovery. We will know more tomorrow when the preliminary PMIs for July are released. The Eurozone PMIs are forecast to be only a touch weaker, so there seems to me to be plenty of room for disappointment. Meanwhile, the technical picture for EUR/USD is also negative (see below). This could be the break we EUR bears have been waiting for for so long.

·         On the other hand, EM currencies continue to gain. RUB was the best-performing EM currency of the ones we track, followed closely by the high-yielding TRY, ZAR and BRL. EM currencies may be benefitting from the capital flight from Russia as investors (and locals) pull out of that market and put their money elsewhere. Carry trades look set to perform well even if “risk off” returns, because of the lack of contagion to other EM countries.

·         Q2 CPI from Australia was in line with forecasts at +3.0% yoy, up slightly from +2.9% yoy in Q1. The news sent AUD sharply higher despite the fact that the headline figure and “weighted median” were exactly as forecast, because the “trimmed mean” figure rose faster than expected at 2.9% yoy, up from 2.6% yoy and exceeding estimates of 2.7% yoy. The higher inflation rate makes it less likely that Australia might cut rates in the foreseeable future.

·         Today:  During the European day, the only data we get are manufacturing confidence data from France and the preliminary consumer confidence for Eurozone, both for July.

·         In the UK, the Bank of England releases the minutes of its latest policy meeting. Recent comments and speeches by MPC members, plus the minutes of recent meetings, indicate that at least some members have moved closer to a dissenting vote, but I doubt that it will come this month. With no outright dissent, the focus will be on the range of views on spare capacity among MPC members and the debate about when to start raising rates. Separately, BoE Governor Mark Carney will speak to a business conference.

·         From the US, we get the MBA mortgage applications for the week ended on the 18th of July and as usual no forecast is available.

·         In Canada retail sales for May are expected to slow to +0.3% yoy from +0.7% yoy in the previous month.

ECB Executive Board member Peter Praet speaks. 

Tuesday 22/07/2014 - Midday Comment - AUD/USD overview

AUD/USD

·         The dollar traded mixed against its G10 counterparts during the European morning Tuesday. It was higher against CHF, EUR and NZD, in that order, while it was lower against NOK and AUD. The greenback traded nearly unchanged against SEK, GBP, JPY and CAD.

·         Aussie gained during the European morning, after Reserve Bank of Australia Governor Glenn Stevens said he is pleased with the current monetary policy. Nevertheless, he added that if at some point there is more that can reasonably be done, they will do that. The top central banker did not say anything directly about the currency. In his comments earlier this month, Gov. Stevens declared that the Aussie was “overvalued, and not by just cents”. The comment was made a few days after the Bank maintained its key interest rate unchanged at 2.50%.

·         European stock markets rebounded as Ukraine’s pro-Russian separatists handed over the plane’s black boxes to Malaysian authorities and some of the victims’ bodies were making their way to the Netherlands. The recent developments reduced markets anxiety and lifted shares in Europe.  The German DAX and the French CAC indices jumped approximately 0.90% from Monday’s closing level. Focus now turns to the outcome of the European Union foreign ministers meeting on discussions over further sanctions against Russia. Russia’s Security Council is also due to meet.

·         AUD/USD moved higher during the European morning, extending its overnight rally. During the Asian morning, the pair rebounded from 0.9360 (S1) and at the time of writing is heading towards the resistance zone of 0.9410 (R1). The RSI moved above its 50 line, while the MACD rebounded from its zero line, confirming the recent positive momentum. Nonetheless, I would consider the overall near-term path of AUD/USD to be to the sideways, since the price oscillates between the barriers of 0.9330 (S2) and 0.9410 (R1), with no clear trending structure identifiable. A clear move above the 0.9410 (R1) bar is likely to signal an upside exit and see as a first target the next resistance at 0.9455 (R2). On the other hand, only a clear dip below the strong obstacle of 0.9330 (S2) could flip the picture negative. Both the moving averages are pointing sideways, while on the daily chart, both our momentum studies lie near their neutral levels. This confirms the trendless mode of the currency pair and corroborates my neutral stance.

·         Support: 0.9360 (S1), 0.9330 (S2), 0.9300 (S3)

·         Resistance: 0.9410 (R1), 0.9455 (R2), 0.9505 (R3)

Tuesday 22/07/2014 - Market Overview

·         Ukraine crisis sets the tone  The crisis in Ukraine dominated activity Monday. The dollar gained all around against its G10 counterparts (even JPY) as the US currency’s safe-haven appeal came to the fore amidst general risk aversion. Stocks fell while oil and government bond prices rose. Gold was little changed, however.

·         Only two of the 15 EM currencies that we track -- RUB and CZK – were noticeably lower vs USD, while several gained substantially, including THB, TRY, IDR and ZAR. This shows there is little if any contagion effect from the Ukraine crisis on other EM markets. The gains of the high-yielding currencies suggest that carry trades are not being affected (yet).

·         Outlook for the crisis:  The latest round of US sanctions against Russia, targeting publicly traded companies, is a clear escalation from previous rounds. While there was some division between the US and Europe on the scale of sanctions last week, the airline tragedy increases the likelihood that Europe will respond with stricter sanctions more in line with those of the US. We await the results of today’s EU foreign ministers’ meeting to see if EU governments will ratchet up their response.

·         Russian President Putin’s response to these sanctions is key. He has to choose between two unpleasant alternatives: either give up supporting Russian separatists in Ukraine and face a loss of political capital among nationalists at home, or tough it out against ever-tightening sanctions and face decreasing popularity among the general public. Alternatively, he could even escalate the crisis now in order to de-escalate later. His actions will be driven primarily by his desire to maintain his domestic popularity, which he gauges through his popularity ratings.  The latest polls suggest that war fatigue may be setting in, with 56% of Russians against sending troops to eastern Ukraine. Such numbers suggest that Putin is likely to prefer to de-escalate the crisis. De-escalation of the crisis would of course cause a reversal of the risk-off pattern.

·         The UN Security Council yesterday unanimously (i.e., including Russia) adopted an Australia-proposed resolution calling for an independent investigation into the downing of Malaysia Airlines Flight MH17, cessation of military activity around the site and unimpeded access for investigators, AP reported. This response also suggests that Putin may adopt the de-escalation path. On the other hand, there are questions about how much control Russia has over the separatist movement.

·         On top of the geopolitical excitement in Europe, the Bundesbank monthly report said that “economic growth in Germany markedly lost momentum in the first two months of spring.” Yet after all that, EUR/USD is opening in Europe this morning just 13 pips lower than yesterday’s opening. However, one of the reasons EUR has been so well supported has been US buying of European stocks, but as European markets decline, those flows are likely to reverse, dragging EUR/USD down.

·         Today’s schedule:  The EU foreign ministers’ meeting mentioned above is the main event in Europe. There are no major data due out from the Eurozone today.  From the UK, we get the CBI Trends survey for July.

·         In the US, the CPI for June is anticipated to remain unchanged in pace at +2.1% yoy. Given that US average weekly wages rose by 2.0% yoy in June, this would make a second month in a row that real wages declined. Speaking last week before Congress, Fed Chair Yellen noted that real wage gains “have been nonexistent” (although to be fair, the Fed looks more at the Employment Cost Index, which is growing slightly faster.) She has previously emphasized the potential risks to consumer spending posed by wages rising by less than the rate of inflation.

·         Existing home sales for June are forecast to rise, but last Thursday’s disappointing housing sector data may push the figure to a weaker level. The Richmond Fed manufacturing index for the same month is expected to decline. The Federal Housing Finance Agency (FHFA) home price index is forecast to show that the pace of increase in house prices slightly accelerated in May.

Overnight, Australia’s Q2 CPI is forecast to have slowed +0.5% qoq, from +0.6% qoq. That could prove negative for AUD.