Daily Forex Snapshot

It was a quiet FX trading session in Asia as most G10 currencies treaded water. EUR/USD was little changed and edged up 0.03% to 1.0891. In the short-term, the bias remains on the downside, even though we believe that further dollar gains are unlikely. On the downside, a key support can be found at 1.0822 (low from October 3rd), while on the upside the main resistance lies at around 1.12-1.13 (previous highs).

The pound sterling stabilised at around 1.2170 overnight after tumbling at 1.2083 on Tuesday amid a broad, but short-lived, USD rally. On the downside, the 1.1841 level will act as main support, while on the upside the high from October 7th at 1.2477 remains the closest resistance.

In Australia, the better-than-expected Q3 inflation report gave a strong boost to the Aussie. The Australian currency rose 0.75% against the pound sterling, 0.70% against the greenback and 0.60% against the Japanese yen as the consumer price index printed at 1.3%y/y, beating consensus of 1.1% and previous quarter’s reading of 1%. The trimmed mean gauge - that excludes both ends of the distribution - came in in line with the median forecast at 1.7%.

Consequently, AUD/USD jumped more than 1% in a matter of seconds, hitting 0.7709, as the strong inflation figure decreased the likelihood of an interest rate cut from the RBA. Finally, the currency pair eased slightly at around 0.7690. On the long-term, AUD/USD has still been unable to validate a clear break of the top of its declining channel, which currently stands at around 0.7650.

In the equity market, Asian equities were wearing red following the negative lead from Wall Street. Indeed, the S&P 500 was down 0.38% on Tuesday amid disappointing company earnings. The Dow slid 0.30% and the Nasdaq fell 0.50%. In Asia, only Japanese stocks were able to keep their heads above water with the Nikkei edging up 0.15% and the broader Topix index. Elsewhere, the Shanghai Composite fell 0.53%, the Hang Seng slid 0.82%, while in South Korea the Kospi was off 1.14%.

Today traders will be watching retail sales from Italy; MBA mortgage application, wholesale inventories, services and composite PMI, new home sales and crude oil inventories from the US; trade balance from New Zealand.

source: Swissquote

Risk appetite shifted from mild to weak on the back of weak Chinese economic data. Asian regional equity indices are trading in the red with the Nikkei -0.39%, Hang Seng -1.41 and Shanghai composite -0.05% (however the recent moment is positive). Global yields are trending lower as soft exports from China raise questions on the strength of global demand (FX markets remain correlated to yields).

In the FX markets, the USD was mixed as the FOMC minutes left much open for debate, especial the timing of the next interest rate hike. Selling pressure on the THB relaxed slightly around the 35.72 levels, however, with the King’s health deteriorating, investors will be watching the THB carefully.

OPEC's report that crude production has reached the highest level in 8-years, sent oil prices lower.

An article in the FT regarding the cost of Brexit including €20bn payments to settle financial obligations has inspired sterling bears, selling GBPUSD down to 1.2143. Endless headlines, speculation, rumors will keep volatility around the GBP high.

The FOMC meeting minutes highlighted significant divergence between members. Three members dissented voting for a 25bp rate hike. However, the majority indicated that "the case for an increase in the federal-funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.

Overall, the minutes provide no revelations as we continue to expect the fed to drag their feet on an interest rates increase. We expect US economic data to remain unconvincing, yet should data surprise to the upside, watch for the Fed to blame anything: a rise in oil, strong USD, the price of tea in China, anything that would help them avoid tightening policy.

We remain negative on the USD believing that the current rally in yields is unwarranted, pricing of a December hike has maxed at 67% probability and see upticks as an opportunity to reload USD shorts. We are constructive on EM, dividend stocks and IG credit.

Soft data from China increased speculation that global growth is unstable. China September trade surplus widened $41.99 bln against $53 bln eyed, with exports falling -10% y/y, imports -1.9%, while a positive read was expected in both cases. However, China commodity import surged.

In New Zealand, October consumer confidence climbed to 122.9 from 121.0, the highest read since mid-2015. PMI rose 2.5 points to 57.7, the highest level since January. Sept REINZ median house prices rose +3% m/m, +7% y/y. The solid data failed to give NZDUSD a sustainable boost with traders reloading shorts at 0.7080 and eyeing 0.6960 as the next target.

Another light day in regards to scheduled economic releases will have traders focused on macro news, which could come from anywhere. Expect choppy trading conditions.

source: Swissquote

Crude oil prices had some respite last week as the West Texas Intermediate rose 11% from $39.20 to $43.50 a barrel. Immediately, several market participants turned bullish and predicted that the black gold would quickly return towards the $50 threshold, neglecting to take into account the weak global environment and mounting concerns about a supply glut. Released on Wednesday, US inventory data surprised to the upside and increased by 1.05mn barrel to 523.6mn, while market participants were expecting a reduction of 1.5mn barrels. This is the third straight week of increases in US stockpiles and with the rising number of rig count in the US, it is very unlikely that we will see a reversal in the current demand/supply imbalance. There are some rumours about a possible agreement among OPEC members in Algeria in September, which could in theory limit supply to boost prices. Meanwhile, the WTI resumed its debasement and fell more than 4% from yesterday’s high. A strong support can be found at $40.52 (200dma), while on the upside a resistance lies at $43.52.

Currency Tech:

The New Zealand dollar was the best performer among the G10 complex as it rose 0.67% against the US dollar in overnight trading. NZD/USD tested 0.7341 in spite of the RBNZ’s decision to cut its official cash rate by 25bps to a record low 2%. As I wrote yesterday, the market was expecting not just a rate cut, but also a strong signal from Governor Wheeler. The statement and press conference were clearly not dovish enough, while the market expected the RBNZ to leave the door wide open for another rate cuts. Instead, Governor Wheeler admitted that the Reserve Bank of New Zealand has “very limited influence over the exchange rate”, basically stating outright that it is incapable of competing in the global currency war. NZD/USD failed to break the 0.7325 resistance (high from July 12th) to the upside and is currently trading at around 0.7260.

Global indexes:

Overall, it was a quiet FX session in Asia as most currency pairs treaded water. Precious metals continued sliding lower with gold falling 0.32%, while silver was off 0.48%. After falling 0.40% in the US and European session yesterday, the yellow metal dropped another 0.30% in Tokyo, down to $1,342.65 an ounce. Gold kept trading within its uptrend channel supported by the strong demand for safe haven assets. For now, gold has been struggling to break the 1,380 resistance (previous highs); however, the technical structure does not indicate a reversal yet.

Today traders will be watching current account balances from Turkey; CPI from Sweden and Italy; manufacturing production from South Africa; initial jobless claims, import price index and continuing claims from the US.

Todays calender :

source: Swissquote

The Brexit referendum has highlighted the major role of safe havens during periods of uncertainty. Bullish pressures on the Swiss franc and the yen have significantly increased. It is clear that it is not the economic fundamentals that are important but rather the political stability of these countries. Japan, like Switzerland is in the middle of a lasting deflation period.

The yen is decorrelated from the Japanese economy while risk on this currency is far from low. In fact, we believe that interest rates may go deeper into negative territory. As a result it is not surprising to see precious metals go up as they constitute interest rate free insurance against a (albeit unlikely) collapse of fiduciary currencies.

The result of the Brexit vote has indeed revealed much. For the first time since the creation of the European Union, the risk of its dislocation has never been so high. To add salt to the wound, in Finland a referendum is also on the table as a petition is already close to having half of the required signatures. Investors are fully aware of these problematics and the demand for gold and silver has massively increased with these precious metals now being traded at levels unseen in three years.

There is nevertheless a paradox in this sharp increase in gold and silver. Banks, European banks in particular, are caught in the eye of the storm as the issuers of paper ounce. T

he supply increase, is keeping precious metals at lower levels and helping to maintain confidence in fiduciary currencies. It is worth noting that the supply of physical gold and silver has never been so high. There is a significant counterparty risk that could further weigh on precious metals prices, which could trigger a split between paper and physical precious metal markets. Let’s remember that the size of the gold paper market is two hundred times the size of the physical gold market.

Will gold and silver increase in the next few months?

There is a real bullish potential. Despite the Fed promising over the last four years that US interest rates would go up sustainably, financial markets have started pricing a likely rate cut before the end of 2017. Mistrust towards central banks is now the new driver for gold and silver. Negative interest rates are completely nonsensical to the extent that the one that lends needs to pay the interest. Moreover, we cannot see how the ECB or the Bank of England could obtain better results that the Fed or the BoJ. The road is now wide open for gold and silver!

source:Swissquote Bank

The pound sterling fell below the 1.28 threshold amid renewed concerns about the impact of Britain’s decision to leave the European Union on global growth. GBP/USD reached 1.2798, the lowest level since June 1985 before stabilising at around 1.29. It is hard to tell how far the pound can actually fall but given the uniqueness of this event and especially the fact that there is no historic benchmark, we suspect that the pound sterling still has some downside potential with the 1.25 level as the next support.

Global indexes:

The Japanese yen surged strongly and hit 100.58 against the US dollar as investors piled into safe haven assets. Similarly, but to a lesser extent, the Swiss franc surged slightly against the single currency, with EUR/CHF sliding as low as 10794 before bouncing back to 1.08. Most interestingly, the CHF weakened against the USD (-0.15%), while the yen surged 0.75% against the greenback, suggesting that the SNB has convinced the market of its determination to prevent further appreciation of the Swiss currency.

Commodity currencies also had a tough night with the Aussie falling 0.50% against the greenback, the Kiwi slid 0.90%, while the NOK fell 0.35%. Commodity currencies were under heavy cross-fire as crude oil prices slid further and sovereign yields took a hit. The West Texas Intermediate fell as low as $46.15 a barrel in Asia, while the international gauge, the Brent crude, slip as low as $47.53 a barrel. Australian 10-year treasury yields printed a new all-time low at 1.84%. Similarly, New Zealand 10-year treasury yields fell to 2.22%, a fresh all-time low.

The single currency was also under selling pressure, mostly against the JPY and the USD as risk sentiment worsened. EUR/JPY slid to 111.04, while the EUR/USD hit 1.1036 as German treasury yields set another all-time record with the 10-year -0.1904%.

Ec. Calendar:

Gold strengthened further, boosted by the strong haven demand. The yellow metal tested $1,371.39 an ounce before stabilising at around $1,366, up 0.72%. The closest resistance can be found at $1,392.33 (high from March 2014). Silver rallied 1.41% to $20.51 and will soon test the $21 resistance level again.

Today traders will be likely focussed on the broad-based sell-off rather than the economic calendar. However, a few key economic indicators are due for release today: industrial output from Spain; Riksbank interest rate decision from Sweden; Markit retail PMIs from France and Germany; MBA mortgage application, trade balance, Markit services and composites PMIs and ISM non-manufacturing from the US.

source: Swissquote

GBP/USD was the best performer during the Asian session and rose another 0.35% after Brexit fears eased as both sides suspended their campaign amid the murder of a British lawmaker. The pound sterling bounced as high as 1.4294 in Tokyo before stabilising at around 1.4250. As expected the BoE meeting was a non-event. The bank rate was kept at 0.50%, while the asset purchase target was left unchanged at £375bn.

Currency Tech:

Yesterday, the US dollar was on a rollercoaster ride with investors finding it difficult to know where to stand between the upcoming Brexit vote, a dovish Fed and mixed US data. Headline CPI came in worst-than-expected, printing at 1.0%y/y, versus 1.1% expected. The core gauge rose 2.2%y/y in May, matching estimates. Finally, the Philadelphia business confidence index rose to 4.7 (versus 1.0 expected) in June from -1.8 in the previous month. EUR/USD fell from to 1.1295 to 1.1131 yesterday before climbing as high as 1.1272 in Tokyo, unable to break the 1.1137 support (low from June 3rd). The closest support can be found at 1.1098 (low from May 30th).

Todays calender :

In New Zealand, manufacturing business confidence rose to 57.1 in May from an upwardly revised figure of 56.6 in the previous month. The consumer confidence gauge climbed 2.3% to 118.9 in June from 116.2 in May as the Kiwi economy continue to weather relatively well the global slowdown. NZD/USD held ground at around 0.7050 in Wellington after hitting 0.6969 during the European session. The bias remains on the upside with a first resistance at 0.7148 (high from June 9th).

The Canadian dollar was better bid this morning as crude oil prices put an end to a 4-day losing streak. The loonie gained as much as 0.50% against the greenback and reached 1.2899 before consolidating at around 1.29, while the West Texas Intermediate rose roughly 1% to $46.60. The international gauge, the Brent crude jumped 1.50% to $47.75.

In the equity market, Asian regional markets reversed losses overnight. The Japanese Nikkei surged 1.07%, while the broader Topix index was up 0.75%. In mainland China the Shanghai Composite was up 0.31% and the tech-heavy Shenzhen Composite rose 0.63%. Offshore, Hong Kong’s hang Seng was up 0.49%. Further south, the S6P/ASX went up 0.32%, while in New Zealand the S&P/NZX was off 0.60%.

Today traders will be watching the trade balance from Italy; housing starts and building permits from the US; CPI and core CPI from Canada; in Europe, Draghi will speak at CET 17:00.

source:Swissquote

The US dollar strengthened substantially in overnight trading amid rising expectations about an upcoming rate hike by the Federal Reserve. The greenback gained ground against almost all G10 currencies with the exception of the pound sterling, which was able to stabilise slightly below the 1.45 threshold. The probabilities of a rate hike at the June meeting - extracted from the overnight index swap - rose to 27% on Tuesday from almost zero a month ago.

World markets :

US treasury yields stabilised along the curve with renewed upside pressure on the short end. The monetary policy sensitive 2-year yield rose another 3bps in overnight trading, reaching 0.9050%; while the 10-year continued to ease as it slid to 1.8350%. This suggests that the market is still wary of inflation and growth expectations in the US. However, we remain cautious regarding further USD appreciation as we have the feeling that the market has been paying too much attention to recent, mainly bullish Fed discourse. We expect the Fed to adopt a very cautious approach, especially given the lack of significant improvement in the growth and inflation sides. Therefore, over the next few weeks, we expect the dollar to erase earlier gains as the penny finally drops that a June rate hike is officially off the table.

In Asia, the strong dollar continued to weigh on equities with most regional equity indices trading in negative territory. In Japan, the Nikkei was off -0.77%, while the broader Topix index eased -0.78%. In mainland China the Shanghai and Shenzhen Composites were down 0.77% and 0.85% respectively. Offshore, Hong Kong’s Hang Seng fell 0.35%, while in Singapore the STI was down 0.40%. In Europe, equity futures are pointing towards a lower open.

In Australia, the Aussie fell another 0.55% against the US dollar as Governor Stevens defended the current target band inflation target, adding that inflation was difficult to control in the short term. AUD/USD reached 0.7193 in Sydney before stabilising at around 0.7195. We maintain our negative bias on AUD/USD as the Australian economy should still suffer from a slowing Chinese economy in spite of the hype of the first quarter.

Todays calender:

In China, the People’s Bank of China set the USD/CNY fixing higher to 6.6448 from 6.5455 in the previous day. Since the beginning of May the renminbi has continuously depreciated against the greenback, which could potentially put the capital outflow story back under the spotlight.

Today traders will be watching trade balance from Switzerland; GDP and ZEW from Germany; manufacturing confidence from France; unemployment rate from Sweden; BoE’s Carney speech; Turkey’s interest rate decision (cut in the lending rate expected); current account balance and foreign direct investment from Brazil; new home sales and Richmond manufacturing index from the US.

source: Swissquote

Financial markets continued their back and forth with risk appetite, as limited news flow provided little for traders to grab onto. FX implied volatility continued to decline sharply as FX ranges consolidated. Asia regional equity indices were mixed with the Nikkei up a marginal 0.30%, while the Shanghai composite and Hang Seng declined -0.35% and -0.27% as disappointing earnings weigh on stocks. European futures are pointing to a lower open. USD remained basically unchanged in the Asian session but gained against the JPY, AUD and CNY (which weakened for a third straight day), while losing to KRW and MYR.

Spoiler:

In our view, AUD range weakness was driven by events in China and commodities, rather than domestic developments, such as the revelation that Australian PM Malcolm Turnbull was named in the Panama papers. AUDUSD felt steady selling pressure fall from 0.7380 to 0.7330. Crude oil was weaker as expectations for a steady return of Canadian oil sand output increased. EURUSD spent another session stuck in a 20pip choppy pattern. USDJPY bounced off the 108.23 low, climbing to 109.00 as BoJ Kuroda and PM Abe's aide Ito provided verbal support for JPY weakness. In Brazil, markets are on tenterhooks as they wait for the senate to vote on President Rousseff’s impeachment and brace themselves for further social unrest. However, despite the uncertainly and accompanying credit downgrades BRL continues to strengthen against the USD. Elsewhere in South America Venezuela begins proceedings to remove President Maduro.

Spoiler:

The UK will be in the spotlight today with the BoE MPC meeting, meeting minutes and release of the BoE inflation Report. In regards to the BoE rate decision, we are in line with the market and expect no change in policy. Traders will focus on the accompanying press conference for any discussion on “Brexit.” Judging from yesterday's weaker industrial production read, which indicated slowing expansion of a meager 0.3% m/m, we could get a downbeat Inflation Report. The committee is expected to lower growth forecasts for domestic and international while CPI inflation forecasts risk is expected to remain unchanged but risk is to the downside.

Spoiler:

Furthermore, markets will be critical of how the inflation report handles the “Brexit” issue and what it forecasts post-June 23rd. We suspect that the outcome will have a profound effect on both UK growth and the inflation outlook, which so far the BoE has not acknowledged. The sterling is now up against headwinds in political & event uncertainty and high sensitivity to risk aversion. GBPUSD false breakout above 1.4700 is running into resistance at the 1.4800 supply area, indicating a reversal in the bullish momentum. We anticipate a bearish correction to 1.4298.

In Europe, March industrial production is expected to rise to 0.0% from -0.8% m/m. Yet, gauging from weak national reads the risk is for disappointment. We suspect that the EURUSD will remain range-bound 1.1200 to 1.1600 ahead of the single-currency threatening “Brexit” vote. Norway interest rate decision expected no change at 0.50% and 1Q GDP will be release with markets expect 0.1% from -1.2% q/q.

In the US, a slew of speakers Cleveland Fed President Mester (FOMC voter), Boston Fed President Rosengren (FOMC voter), and Kansas City Fed President George (FOMC voter) could provide insight into the Feds thinking. Mexico will release industrial production expected to expansion at 0.1% m/m, with any upside surprise to be due to strong construction activities.

sorce: Swissquote

The Dow Jones Industrial Average closed at 17,711.12, down -217.23 or -1.21%. S&P 500 closed at 2,064.46 down -19.93 or -0.96%. Nasdaq Composite closed at 4,760.69 down -49.19 or -1.02%.

Long Term Market Timing Signals

Spoiler:

The chart above shows a red arrow when the Trend Momentum is going down and the rank crosses 0 from a bull market to a bear market. A green arrow is shown when the Trend Momentum is going up and the rank crosses 0 from a bear market to a bull market.

Market conditions are Mildly bearish in a Bear Market as of 2016-05-11. This means traders and investors should consider trading with a bearish bias by raising stop levels on winners and selling losers. The rank of the Bear Market is -0.59. The Most recent Sell Signal came on Sept 21, 2015.

Short Term Market Timing Signals

Spoiler:

The short term market timing portion of the newsletter shows a combination of all three indicators on one graph, the momentum, breadth and sentiment indicators. The red and green arrows on the chart above the indicator chart will show each time these indicators gave confirmation or confluence that meet the buy or sell criteria. When market conditions are at extreme levels this group of indicators will find reversal ranges. If you see multiple arrows stacked one on the other each represents the day that the confirmation signal was still in place.

Sell Signals are generated when sentiment is above breadth and Breadth is above momentum and all are above 90.
Buy signals are generated when momentum is lower than breadth, breadth is lower than sentiment and both breadth and momentum are lower than 40.
Values shown for Momentum, Breadth and Sentiment on the above charts do not match those of the ones below, data has been normalized here. Evaluate those charts individually.

Momentum Indicator

Spoiler:

The Momentum Indicator is currently at 11.23 indicating short term Non-trending environment in stocks. This means the stock market is stalling in the current short term trend. Extreme measures of this trend range are -70 to 70. This indicator's trend cycle extremes take place every 3 to 6 months.

The vertical buy and sell lines will only show a new line if a subsequent buy or sell signal has already been generated. For example, the indicator may be showing that it is in the buy range but there will not be a new buy Signal vertical line on the chart if there has not yet been a sell signal.


Breadth Indicator

Spoiler:

The Breadth Indicator is currently at 60.95 indicating the breadth of stocks moving higher is neutral. Risk of a trend reversal low. This means the current trend is likely to continue. Extreme measures of this trend range are 30 to 65. This indicator's trend cycle extremes take place every 3 to 6 months.

The vertical buy and sell lines will only show a new line if a subsequent buy or sell signal has already been generated. For example, the indicator may be showing that it is in the buy range but there will not be a new buy Signal vertical line on the chart if there has not yet been a sell signal.


Sentiment Indicator

Spoiler:

The Sentiment Indicator is currently at 97.60 indicating the sentiment in the stock market is showing extreme complacency. Risk of a long term bearish trend reversal is extreme. This means the current long term bullish trend is NOT likely to continue. Extreme measures of this trend range are 95 to 100. This indicator's trend cycle extremes take place every 18 to 24 months.

The vertical buy and sell lines will only show a new line if a subsequent buy or sell signal has already been generated. For example, the indicator may be showing that it is in the buy range but there will not be a new buy Signal vertical line on the chart if there has not yet been a sell signal.

The lack of news provides traders with the opportunity to loosen FX safe haven trades, while taking some marginal risk. Data from the US indicates that the labor market remains solid as JOLT job openings came in higher then excepted, while China provided further evidence of stabilisation despite disappointing trade data. Regional Asian equity markets were mixed, following the impressive US rally, as the Nikkei and Shanghai composite rose marginally, while the Hang Seng dipped -0.67%. The big mover was the Philippines exchange, which continued its post presidential election rally, rising 3.36%.

Spoiler:

The strong recovery in asset prices indicates that the election of populist Rodrigo Duterte is viewed as an opportunity by investors. USD was weaker against G10 and EM Asia but selling pressure was light. Japan's April foreign reserves increased $410 mln to 1.262.509 bln, while the MoF confirmed that no direct FX intervention took place in Q1 2016. With USDJPY solid rebound to the 109 levels we do not anticipate direct FX intervention despite heightened rhetoric. Australia's May Westpac/MI consumer confidence index rose 8.5% m/m to 103.2, reaching the highest level since January 2014 and reversing the decline of the last two months. The positive result gave AUDUSD a slight bump off the 0.7300 low to 0.7391.

Spoiler:

Crude oil remained weak, bouncing around the $44.50 handle despite unrest in Nigeria and wildfires in Canada. Brazil's senate will vote today on whether to put President Dilma Rousseff on trial. Surprisingly, despite the social unrest and political uncertainty the BRL actually saw a marginal gain against the USD. BRL traders should stand ready for rogue and amplified volatility in the currency. In New Zealand, the latest bi-annual Financial Stability Report indicated that risk to outlook was threatened by the rapid rise of the housing market.

Spoiler:

RBNZ’s Wheeler suggested that macro prudential measures would be used to rein in house price inflation rather than monetary policy (by tightening interest rates). By directly addressing the bubble in housing the RBNZ indirection has opened the door for further interest rate cuts. We remain bearish on the NZD based on the monetary policy outlook.

With a very light calendar FX trade will remain subdued and non-directional. The highlight of the European session should be the UK March industrial production. Markets anticipate industrial production to print at 0.5% m/m, with manufacturing output expanding by 0.3% m/m. However, due to Brexit-induced weakness abundantly seen in UK data, risk is skewed to the downside.

source: Swissquote

USDJPY falls to 18-month low, For the start of the trading week risk appetite in Asia was poor as the JPY sunk to an 18-month low. USDJPY fell to 106.28 following economic data indicating that April manufacturing PMI declined to 48.2, versus a flash read of 48.0 and March final 49.1. Asian regional equity markets were in the red, led by the sharp fall in the Nikkei of -3.50%. However equity trading volumes were limited as China, Hong Kong and Singapore were closed for Labor Day.

Recently, Japan's Finance Minister Taro Aso commented that current yen appreciation reflects increased speculative action and that Japan stood ready to respond. This confirmation to conduct direct FX intervention comes despite the US Treasury's semiannual currency report to Congress, citing Japan’s, but also China's, South Korea's, Taiwan's and Germany’s use of competitive devaluation to gain export advantage.

Currency Tech:

The report reiterated the importance of countries sticking to the G7 and G20 agreements regarding exchange rate policy. While verbal intervention should increase as USDJPY falls to 105, we believe that any FX intervention will be seen as a last ditch effort as a unilateral approach to push USDJPY meaningfully higher without a recovery in Fed interest rate expectations would be futile.

In FX markets USD was weaker versus the G10 and mixed against Asia EM providing traders with few indicators for sustained direction this week. As the Fed signals expectations for two 25bp hikes in 2016 and amid lingering expectations for a June increase, we still anticipate a single hike and we see no material reason for the USD to strengthen in the near term. This week will see several Fed members delivering public addresses, potentially signaling a shift in views on the June meeting.

In addition, markets should see another strong payroll report with expectations for April NFP to come in above 200k. While markets have become numb to strong labor data another solid read should have markets chattering again and bidding up USD in the short term.

As further evidence of stabilisation, China's Manufacturing PMI printed at 50.1 versus expectations of 50.4. China's March non-Manufacturing PMI was softer at 53.5, down from 53.8. With both above the 50 threshold this would ordinarily indicate expansion, however, we view these numbers as merely evidence of stabilisation rather than as an indicator of acceleration.

Todays calender:

In Australia, April business condition indications slipped to 48.2 from March's final read of 49.1, while business confidence fell to 5 versus 6 in March. In addition, Australia's April AIG Performance of Manufacturing Index slipped 4.7 points, down to 53.4. This disappointing data and softer commodity prices failed to drive AUDUSD with the pair consolidating around the 0.7610 level. Last week’s surprising collapse in Australia’s underlying inflation and soft incoming growth data is likely to push the RBA to cut its policy rate 25bp to 1.75%. We remain bearish on AUD and see short AUDJPY as a clear way to materialise this view.On the calendar today Switzerland will release retail sales, EU Markit Manufacturing PMI, and US ISM data.

Source: Swissquote

G10 Advancers and Decliners vs USD:

The US dollar is continuing to lose ground across the board after data showed the US economy expanded at its slowest pace since the second quarter of 2009. GDP increased at a 0.5% annualised rate - versus an expected 0.7% - after rising 1.4% in the fourth quarter of 2015 as personal consumption failed to boost growth in spite of low gasoline prices.

The dollar index fell another 0.34% during the Asian session and is currently trying to validate a break in the key support at around 93.80 (low from mid-October 2014).

The index has in fact lost more than 7% since December when investors began to price in a slower interest rate path increase - we still expect more than one rate hike in 2016 although this may be overly optimistic in our view.

EUR/USD gained momentum and reached 1.1397 in Tokyo. Given the continuous flow of disappointing economic data from the US, we expect the pair to soon re-test the 1.1495 before heading towards the next resistance, at 1.1714 (high from August 2015).

The South Korean won was one of the worst performing currencies among the Asian complex. March industrial production came in on the soft side, contracting 2.2%m/m, while the market was anticipating a contraction of only -0.5%. On a year-over-year basis industrial output shrank -1.5%, missing estimates of +0.2%, while the previous month’s reading was downwardly revised to 2.2% as exports continue to shrink as a result of the Chinese slowdown. USD/KRW rose 1,139 from 1,1136.

In New Zealand, business confidence printed higher in April, rising from 3.2 in the previous month to 6.2. However, NZD/USD traded range bound during the Asian session, between 0.6956 and 0.6989. In Australia, AUD/USD edged up 0.38% despite weak PPI numbers. The price producer index contracted 0.2%q/q in the March quarter, down from +0.3% in the previous one.

On the equity market, equities were trading in negative territory across Asian markets with the Shanghai and Shenzhen Composites down -0.25% and -0.02% respectively. In Japan, markets were closed for Shōwa Day. In South Korea, the KOSPI fell 0.34%, while in Singapore the STI slid 0.65%. In Europe, equity futures are suffering a small sell-off, following the negative lead from Wall Street.

Today traders will be watching: The trade balance from Turkey; KOF leading indicator from Switzerland; GDP from Spain; the unemployment rate from Norway; mortgage approvals from UK; CPI and GDP from the Eurozone; CPI from Italy; key rate from Russia; trade balance from South Africa; personal income and spending, PCE deflator and Michigan Index.

Todays calender:

Source: Swissquote

In spite of an improving risk environment, equity indices kept moving lower during the Asian session as the PBoC set the USD/CNY fixing higher to 6.5237, up 0.16% compared to yesterday. With the exception of mainland Chinese indices, Asian regional were broadly trading in negative territory as fears of another sell-off are still very much present.

From our standpoint, the worst may be behind us as the market gradually realises that nothing justifies the sell-off, which started at the beginning of the year. Even if it is true that most developed economies send mixed signals, we are still far from being in a recession as it looks more like a temporary slowdown. In Japan, the Nikkei fell 1.36% and the Topix settled down 1.13%.

In mainland China, equity indices reacted positively to the yuan’s devaluation as the Shanghai and Shenzhen Composite were up 1.08% and 1.42%, respectively. Offshore, Hong Kong’s Hang Seng slipped 0.81%, while in Singapore the STI fell 1.24%. Elsewhere, Thai shares were down 0.80%, in Taiwan the Taiex edged up 0.03%, while in India the Sensex fell 0.67%. European equity futures are mixed this morning as traders struggle to pick a side between bear and bull.

Overnight, the downward shift of the entire US yield curve weighted on the greenback. On the short end of the curve, the 2-year rates fell 2bps to below 0.70%, while on the long end the 10-year slid 3bps to below 1.75% as recession’s fears as still very much present. The US dollar index, which measures the dollar against a basket of currencies, was down 0.20%.

The slide of the US index was limited by the fall of the commodity currencies. AUD/USD continued to move lower and stabilised around the $0.71 level, while the loonie fell as much as 0.35% before erasing early session’s losses. From our standpoint, the bias in AUD/USD remains on the downside as the US dollar appears to have been oversold over the past few weeks.

Safe haven currencies took advantage of this risk-off environment as both the Swiss franc and the Japanese yen appreciated against the greenback in overnight trading.

USD/JPY continued to slide further, dropping below the 113.50 level, down 0.50%. USD/CHF fell 0.33% during the Asian session as the pair lack the strength to break the 0.99 resistance to the upside. We’ll need to see a significant improvement in the risk sentiment before we see USD/CHF trading higher.

Today traders will be watching CPI report and retail sales from South Africa; jobless claims from the UK; ZEW survey from Switzerland; MBA mortgage application, housing strarts, building permits, PPI industrial production, capacity utilisation and the publication of the minutes of the last FOMC meeting from the US.


source:Swissquote

As expected, the Reserve Bank of New Zealand has cut the OCR by 25bps to 2.75% and left the door wide open for further easing as it claimed it will remain data dependent. The Central Bank revised downward its growth projection to around 2% from 3% in its June statement, arguing that “the economy is adjusting to the sharp decline in export prices, and the consequent fall in the exchange rate”.

On a more positive note, Graeme Wheeler noted that growth was supported by “robust tourism, strong net immigration, the large pipeline of construction activity in Auckland and other regions”. As a result, the New Zealand dollar dropped 2.30% against the US dollar and is now trading around $0.6270. We were already bearish on the NZD and this dovish statement has only reinforced our view that the RBNZ wants to see a weaker Kiwi. On the data front, house sales jump 41.7%y/y in August, according to REINZ, after increasing 37.8% in July.
In a surprise move, Standard & Poor’s lowered Brazil’s long-term credit rating to junk, from BBB- to BB+, while maintaining a negative outlook. The New York based credit-rating agency argued that “The political challenges Brazil faces have continued to mount, weighing on the government's ability and willingness to submit a 2016 budget to Congress consistent with the significant policy correction signaled during the first part of President Dilma Rousseff's second term”. Traders will therefore price in the new information in USD/BRL today and it won’t be pretty as the move wasn’t anticipated so soon (S&P cut the outlook to negative on July 28th). The BRL per dollar is not that far after all.

In the Asian session, stocks partially erase yesterday’s strong gains as mounting uncertainties about Fed’s next interest rate decision push traders to take their recent profits. The Shanghai Composite edges lower by 0.87%, while its tech-heavy counterpart, the Shenzhen Composite lost 0.28%. In Japan, the Nikkei 225 lost 2.51% of yesterday’s 7.71% gain while the Topix index falls 1.85%. Only the Kospi index from South Korea manages to stay in positive territory and rises 1.44%. In Australia, the S&P/ASX falls 2.42%, despite an encouraging job report. Unemployment rates fell to 6.2% in August from 6.3% in July as the economy created 17.4k jobs, beating expectations of 5k. The Australian dollar rebounded above the 0.70 threshold against the US dollar, erasing early session losses.

In Europe, equity futures follow the Asian lead with the Euro Stoxx 50 down -1.16%, DAX down -0.96%, CAC 40 down -1.10% and the SMI down -0.82%. In UK, the Footsie is down -0.93% while the sterling proves rather resilient given the disappointing data released yesterday. July’s industrial production contracted -0.4%m/m versus 0.1% median forecast while manufacturing production printed at -0.8%m/m versus 0.2% consensus. GBP/USD is grinding slower and lost 0.40% from yesterday’s high. The closest support stands at 1.5165 (low from September 4th) while on the upside, a resistance can be found at 1.5413 (high from September 8th).

Today, traders will be watching inflation report from Sweden and Norway; an interest rate decision from the BoE in UK; manufacturing production from South Africa; COPOM minutes, IPCA inflation from Brazil; new housing prices from Canada; import price index and initial jobless claims from the US.

Source:Swissquote

China continues to weigh on world markets

World stock markets ended last week on a positive note, with Chinese mainland shares recovering more 10% losses in two days. However, this week is a different story as stocks from across the globe are moving into negative territory again. Wall Street ended the first day of the week in red with the S&P 500 down -0.84%, the Dow Jones down -0.69% and the Nasdaq down -1.07%. Unfortunately we may not have reached a bottom yet as Asian regional markets plunge further, dragged lower by weak data from China. China’s official manufacturing PMI contracted to 49.7 in August, matching expectation, from 50 a month earlier. In addition, the final August Caixin manufacturing PMI printed at 47.3 versus 47.1 median forecast - a reading below the 50 threshold indicates a contraction. The Shanghai Composite retreats 1.06% and the Shenzhen Composite loses 4.61%. Regional benchmarks follow the Chinese lead as Japanese Nikkei dropped 3.84% and the Topix index -3.83%. In Hong Kong, the Hang Seng fell 0.76% while in South Korea the Kospi index retreated 1.40% as exports fell the most in 6 years. Exports contracted 14.7%y/y in August versus 5.9% while imports contracted 18.3%y/y verse 15% expected. All in all, August’s trade balance came in at $4347mn versus $6077mn median forecast.
[You must be registered and logged in to see this image.]
Unsurprisingly, the Reserve Bank of Australia kept the cash rate unchanged at record low 2%. In the accompanying statement, the RBA stated that “monetary policy needs to be accommodative” as the economy is expected to continue expanding at a moderate pace. Governor Stevens maintained that “The Australian dollar is adjusting to the significant declines in key commodity prices”. All in all, the RBA seems to be comfortable with the current level of the Aussie, especially since the AUD lost more than 4% against the USD since their last meeting in early August. AUD/USD reacted negatively to the decision and is grinding slightly lower since then. On a side note, we think it is odd that Governor Stevens didn’t mention recent developments in China, suggesting that the RBA is waiting until the smoke clears to assess the effects of a persisting slowdown in China.

In Europe, equity futures are pointing to a lower open across regional markets. Futures on the DAX are down 1.63%, ones on the CAC -1.55% while the ones on the SMI fell 1.04%. Crude oil is sliding lower with the WTI retreating 2.89% while its counterpart from the North Sea falls 2.55%.

In the FX market, the US dollar is under pressure as market participants are still waiting on strong data from the US to resume the dollar rally. A strong reading of Friday’s non-farm payrolls will therefore be key to maintain a September rate hike on the table as a reading in line with expectations will not be sufficient to ensure a September lift-off. EUR/USD is back above 1.1262 (Fib 50% on July-August rally) and will need fresh boost to reach the closest resistance standing at 1.1368 (Fibo 38.2%). A weak ISM Manufacturing reading this afternoon could be that trigger. On the downside, a support can be found at 1.1155 (Fibo 61.8%).

Today traders will be watching unemployment change from Germany; PMI from Switzerland; Markit manufacturing PMI from France; mortgage approval and market manufacturing PMI from UK; unemployment rate from the Euro zone; GDP from Canada; Markit manufacturing PMI from Brazil; construction spending and ISM manufacturing from the US.


source:Swissquote

Beijing gives up, Fed officials send mixed signals

It’s a major blowback for investors who counted on China’s government to shore mainland equity market up. After spending about $200bn buying shares to support a falling stock market, the government realised it is not worth the efforts as the Shanghai Composite is still down 38% since its June peak. Beijing will focus on finding and punishing those suspected of “destabilising the market” for now on, leaving naked investors who were betting that the government’s support will drive mainland equity markets higher. As a result, Asian regional equity markets are broadly lower this morning with the Shanghai Composite down 1.50% and the Shenzhen down 2.82%.
[You must be registered and logged in to see this image.]
Elsewhere in Asia, the Nikkei falls 1.28% in Tokyo and the broader Topix index is down 0.82% as Japan’s industrial production contracted by -0.6%m/m in July versus +0.1% median forecast and +1.1% in June. On a year-over-year basis, the gauge is still up 0.2% while market analysts expected an increase of 0.8%. Vehicle production fell -5.9%y/y in July compared to -5.3% the previous month, housing starts grew 7.4%y/y over the same period while analysts were looking for an increase of 11%. Finally, construction orders contracted 4% in July, after a figure of +15.4% in June. USD/JPY was grinding lower in Tokyo as mixed comments from Fed officials highlighted their divergence of opinion about the timing of the first rate hike since 2006. However, the dollar found the strong support lying at 121.14 (Fib 50% on June - August) and is trading higher since then, back above the 121 threshold.

In Australia, TD securities inflation report indicates that inflation remained roughly stable in August with the monthly gauge printing at 01% versus 0.2% in June while on a year-over-year basis, inflation climbed 1.7%, compared to a figure of 1.6% previous month. Private sector credit contracted 0.6%m/m in July versus 5.9% median forecast and previous month. AUD/USD was therefore treading water in Tokyo and is currently trading slightly above the 0.71 threshold. We remain cautious with the Aussie as the RBA will release its interest rate decision tomorrow (we expect no move) while, on the other hand, Fed officials keep sending mixed signals about the effect of Chinese turmoil on the US economy and especially the inflation outlook.

In Europe, equity futures are broadly lower on Shanghai lead. In Germany, the DAX retreats 0.88%, French CAC -1.13%, SMI -0.95%, Footsie +0.29% and the Euro Stoxx 50 -0.85%. EUR/USD is stuck below the 1.1262 threshold (Fibo 50% on July-August rally) and has been proved unable at breaking it to the upside. On the downside, the previous support lying at 1.1155 (Fibo 61.8%) will continue to support the euro in absence of a strong catalyst.

Today traders will be watching retail sales and CPI from Italy; inflation report from the Eurozone; trade balance from South Africa; Dallas Fed manufacturing activity from the US; interest rate decision from Australia Central Bank early tomorrow morning.


source: Swissquote

Market Brief

Asia stocks declined across the board as Chinese economic data showed more weakness. China Caixin manufacturing PMI final (different from the official read which fell to a five-month low at 50.0) contracted to a 2-year low at 47.8 in July compared with flash estimates of 48.2 and down from 49.4 in June. The Shanghai composite fell -2.33% and Shenzhen declined 2.30%. The Hang Seng fell -1.01% and the Nikkei -0.17%. In the FX markets volatility was subdued after Fridays wild swings. EURUSD was range bound between 1.0966 to 1.0991 while traded slightly higher from 123.90 to 124.10.

AUDUSD edged lower despite solid economic data. AUDUSD fell from 0.7321 to 0.7290. US rates were slightly higher as the 10yr yields rose 2.5bp to 2.205% on the open but quickly slipped to 2.194%. The PBoC kept the USDCNY fix steady at 6.116. With a busy GBP week ahead, the sterling was range bound. Commodties remain under pressure with oil falling in early trading. According to a Bloomberg report, ahead of the China's top leadership’s annual gathering, policy makers are preparing new fiscal spending initiatives to safeguard against economic weakening wouldn’t put there 2015 target out of reach (as in 2014). In the European session, Greece is anticipated to open its stock markets for the first time in over one month. Heavy selling is excepted and headwinds in stock across Europe.
[You must be registered and logged in to see this image.]
According to Bloomberg, BoJ Governor Haruhiko Kuroda stated that there was no current need for additional monetary easing. The inflation trend was improving, yet the BoJ stood ready to adjust policy if needed. He went on to say that in his view the private sector remained more pessimistic then the central bank on inflation outlook. Finally, it was the official BoJ view that its inflation target of 2% would be achieved around the first half of 2056. In economic data, Nikkei manufacturing PMI expanded to 51.2 in July revised lower from 51.4 of preliminary estimates.

Australia, July AIG performance of manufacturing index expanded to 50.4 recovering from a contraction of 44.2 in June. While, HIA new home sales rose 0.5% m/m in June against a prior fall of 2.3% in May. Australia, house prices continue to surge despite efforts of regulators to control growing real-estate prices (dampening RBA easing expectations). Elsewhere, South Korea’s BoP current account surplus quickened to a record high of $12186.5mn against revised lower figures of $8618.1mn in May.
[You must be registered and logged in to see this image.]
In the European session, traders will expect EU, UK and Swedish manufacturing PMI. Switzerland will release sight deposit data which will be of interest due to the fact that EURCHF has traded well above intervention levels. This read will help us understand if the SNB is looking to push the EURCH higher or only intervene to in defensive of the CHF. In the US personal income and spending, PCE and ISM manufacturing are anticipated to be release.

Swissquote Bank

Market Brief

FX markets were quiet, shifting into summer trading patterns. USD was marginally weaker against G10 and EM currencies as US rates were unchanged at 2.264%. EURUSD traded from 1.0929 to 1.0949 in controlled behavior. USDJPY traded in a u-shaped pattern down from 124.25 to 123.91 then back to 124.16. Indicative of a sleepy August Friday trading session. Asia regional equity indices were higher across the board. The Nikkei was up 0.12%, the Hang Seng rose 0.52% and the Shanghai composite increased 0.60%.

[You must be registered and logged in to see this image.]
Commodities remain under pressure with gold falling from $1089 to $1083. Since interest rates have begun to rise globally, gold cost of carry has increased making the precious metal an unfavorable asset to hold. VIX index fell to 12.13 as volatility in stocks dried up. In FX, volatility also continued to decrease indicating that carry based trades should become popular again. In our view CHF and JPY would be the strongest candidate for funding they interest rate driven trades. According to newswire, Alexis Tsipras won his battle against the far left dissenters for the governing of Syriza party. The terms of the current €86bn bailout being negotiated remains highly divisive and we are likely to get a end of year snap election. Elsewhere, the IMF board has told Athens that the unsustainable high level of debt and weak history of reform implementation could keep the IMF from participating in the third bailout. Lingering concerns over Greek bailout negotiations and technical break of 1.0930 should keep EURUSD risk to the downside. Finally, the Swiss National Bank has reported a loss of CHF 50.1 billion for the first half of 2015 (chf 10bn above prior report). Residual costs of abandoning the EURCHF minimum exchange rate.

Japan’s June CPI increased 0.4% y/y above market expectation of 0.3% y/y, but slower than the 0.5% rise in May. Core inflation was unmoved at 0.1% y/y against 0.0% expected and CPI excluding food & energy surged to 0.6% y/y, both above expectation of 0.4%. Overall household spending disappointed falling -2.0% y/y in June, below then consensus growth of 1.9% following a 4.8% increase in May. Weak consumption spending will weigh on 2Q GDP growth and has become a worrying signals that Abenomics effect are slowing.

New Zealand July business confidence fell to -15.3 following a dip -2.3 in June and activity outlook continued falling to 19.0 in July from 23.6. These reads indicated a further weakening of growth momentum. South Korea’s June industrial production growth hastened 1.2% y/y above expectations of a -2.0% fall and revised slump of 3.0% in May.
[You must be registered and logged in to see this image.]
In a light European session, traders will see EA June unemployment rate which is expected to fall 11.0% from 11.1%. EA July flash HICP inflation is anticipated to be unchanged at 0.2% y/y and core inflation at 0.8% y/y. In Russia, we expect that central banks to cut 50bp in line with consensus. The central bank is in a real bind with inflation rising yet growth collapsing. We remain buyers of USDRUB, as the fragile growth outlook and lower official rates, will have markets selling RUB (CBR interventions have paused due to increase RUB decline and high volatility).

In the US session, Canada GDP is expected to be flat at 0.0% m/m from -0.1% in May. The BoC recent rate cut would suggest that market will overlook this weak read. We remain significantly bearish on the CAD due to slowing growth, weak commodity prices and dovish central bank. In the near term USDCAD bullish trend remains intact and likely challenge 1.3103 July 15 high, break would extend strength to 1.3275.

Swissquote Bank

FOMC statement boosts USD

USD continues to find buyers post-FOMC meeting. The Feds accompanying statement was encouraging for US hawks as the committee upgraded its view of the housing and labor markets. However, the critical modification came when “some” was introduced to the sentence “the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market.” This indicates that the Fed has moved closer to hiking rates at the September meeting although clearly the FOMC remains data dependent. In reaction to the meeting USD, US rates, US stocks and oil rallied (signal the market is reading it the same).
[You must be registered and logged in to see this image.]
USDJPY 3-day bullish run has now taken the pair above the 124 handle. EURUSD fell sharply on the report to 1.0960, then staged a minor rally but heading into the European session is under heavy supply pressure (1.0950 last). Commodity currencies were mixed in Asian with AUD performing well while NZD fell. Recent stabilization in commodity prices has allowed EUR funded carry traders to become less cautions, supporting AUD in the process. Asia's regional equity indices there was green across the board. The Nikkei rallied 1.04%, Shanghai composite rose 1.00% and Hang Seng was marginally higher at 0.14%. Following the increase in Fed Fund rates, US 10 year treasury yields rose 3bp to 2.130% and Asian rates were higher across the board.
[You must be registered and logged in to see this image.]
Overnight, Australia’s June building approvals fell -8.2% m/m, well below market expected decline of -1.0%. Annually, approvals increased 8.6% following a revised higher rise of 18.3% in the prior month. New Zealand’s June building permits declined 4.1% m/m. From Singapore, 2Q unemployment rate increased to 2.0% above expectations of 1.9% and prior read of 1.8% in 1Q. In Japan, June industrial production quickened by 0.8% m/m above consensus of 0.3% and May decline of 2.1%. A report by the IMF released overnight stated that Japans economic outlook is for growth is actually weaker than during the nations extended period of deflation, despite gains made under Abenomics. According to Giovanni Ganelli who compiled the IMF report low levels of business investment and slow progress in reforms (ie third arrow) will hamper expansion. We remain bearish on the JPY due to policy divergence theme.

In the European session, headline EA consumer confidence is expected to fall, to -4.4 from -3.4. The fall can be easily attributed to the Greek crisis. Spanish Q2 GDP is likely to quicken to 1.0% q/q from 0.9% q/q , which would be in line with the government forecast. Swedish 2Q GDP is expected to rise to 0.7 % q/q from 0.4% q/q. Swiss KOF leading indicator is expected to increase to 90.4 from 89.7 in July, which would be good news after some weak economic data reads.

The US 2Q GDP is expected to rebound solidly to 2.5% from -0.2% in 1Q. However, recent improvement in housing markets, government spending and production skews the risk to the upside surprise. A strong read should provide one of the final two key data points for a rate hike in September. The second will be Augusts inflation data. We remain bullish on the USD (encouraged by the FOMC statement) especially against the JPY and CHF. Finally, Mexico central banks is expected to hold policy rate at 3.00%. The rapid collapse of the MXN might prompt members to enact FX measures to limit the peso’s rapid deprecation. We remain bullish on the USDMXN, due to oils low prices, Mexico’s uncertain economic outlook and expectation of Fed hikes. Should USD strength accelerate and MXN decline, we would watch for Banxico to move forward with defensive rate hikes.
Swissquote

China's PMI drops, equity markets lower

Equities were trading broadly lower in New York yesterday amid mixed earning reports. The S&P 500 lost 0.57%, the Nasdaq retreated -0.49% while the Dow Jones fell -0.67%. In addition to this negative sentiment among equity investors, Caixin (ex HSBC) China July flash PMI fell unexpectedly to 48.2 versus 49.7 consensus and 49.4 in the previous month, this is the lowest level in 15 months. All Asian regional equity markets are therefore trading in negative territory, with the exception of… China. In Hong Kong, shares lost -0.99%, in Japan the Nikkei dropped -0.69% while the broader Topix index declined 0.63%, in South Korea the Kospi is down 0.93%, Australian shares lost 0.43% and in India the Sensex retreated 0.29%. In China, mainland shares were lucky to find strong support from national institutions - the sale of stock by large stakeholders is still prohibited while the PBoC keeps pumping liquidity in the stock market to maintain it in positive territory. Shanghai Composite is up 0.24% while Shenzhen gained 0.34%.
In New Zealand, posted a trade deficit of NZ$60mn in June while market analysts were looking for a trade surplus of NZ$100mn (previous figure revised higher to NZ$371 to NZ$350). NZD/USD hit the top of its declining channel and lost more than 1 figures since then. Further east in Australia, the Aussie is heavily sold-off on weak Chinese PMI and lost 0.83% against the US dollar as it broke the previous low at 0.7328.

In South Africa, the central bank delivered what was expected and increased its benchmark interest rate by 25bps to 6% in an attempt to curb inflation. However, it isn’t enough to bring USD/ZAR lower as the rand lost another 0.60% against the greenback.
In Canada, the loonie reacted aggressively to better-than-expected May retail sales figure. The data printed at 1%m/m versus 0.6% median forecast while ex auto retail sales came in at 0.9%m/m versus 0.8% consensus and -0.5% previous month. USD/CAD therefore takes a breather around 1.3020 after having surge more than 7.50% in roughly a month.

In Brazil, the real continue to lose ground against the US dollar as June unemployment rate increased to 6.9% from 6.7% previous month, in line with expectations. USD/BRL dropped 1.90% yesterday and reached a 4 month high.

Today traders will be watching Markit PMI from Germany, France and Eurozone; PPI from Spain; trade balance from Sweden; Markit manufacturing and new home sales from the US.



Swissquote

RBA holds easing bias
21.07.2015
Early this morning, the Reserve Bank of Australia released the minutes of its July 7 meeting where they maintained the cash target rate at a record-low 2%. The central bank said that despite “output growth in the March quarter had been stronger than expected” and noted that growth remained below average, and early indications that were that the strength in the March quarter had not carried through to the June quarter. However, the RBA acknowledged that “non-mining business profits had increased over the past year and that business conditions had generally improved over recent months to be a bit above average”.
[You must be registered and logged in to see this image.]
Members indicated that despite the Aussie depreciated considerably against the US dollar, the depreciation had been more modest against a basket of currencies and “the exchange rate had thus far offered less assistance than would normally be expected”. Therefore, we can reasonably expect that the RBA will cut rate before the end of the year as it clearly held an easing bias. However, it’s more likely that Governor Stevens will wait for further economic data before doing so; we therefore do not expect a rate cut at the August 4 meeting given the current economic conditions. The Aussie reacted negatively to the headline and is moving lower since then as AUD/USD is heading towards the 0.7328 support (previous low).
[You must be registered and logged in to see this image.]
In New Zealand, net permanent migration (s.a.) fell to 4,800 in June versus 5,080 previous month while credit card spending grew by 6.5%y/y in June versus previous month upward revision of 7.2%y/y. NZD/USD is right in the middle of its declining channel and is taking a breather after last week’s sharp sell-off. Traders are currently positioning themselves ahead of tomorrow’s RBNZ rate decision and, as most market participants, we expect the central bank to cut its official cash rate by 25bps to 3%.

In Asia, equity returns are broadly positive with Shanghai Composite adding 0.45% and Shenzhen Composite 1.27%. In Japan, the Nikkei reopened higher after a public holiday on Monday. Tokyo’s leading index added 0.93% while the broader Topix index gained 0.66%. In Hong Kong, the Hang Seng is up 0.70%, in South Korea, the Kospi edges up 0.50% while in India the Sensex loses 0.12%.

In Europe, equity futures are edging higher amid Greece’s creditors plan to disburse the first tranche of the bailout by August 17. In the meantime, Greece has made its bonds payment to the ECB and cleared its arrears to the IMF, using the bridge loan obtained on Friday. However, the bailout package still needs to be approved by national parliaments. EUR/USD has proven unable to break the strong support lying at 1.0819 (low from May 27) and is currently trading slightly higher. German Dax edges down -0.01%, CAC 40 is up 0.40% while the Footsie gains 0.02%.


Swissquote

Yesterday, the dollar was heavily sold-off as traders await today’s US GDP figures and FOMC rate decision; the dollar index lost 0.80% at 96.12 and validated the break of the 50dma (97.36). Asian equities are broadly lower this morning with Australian shares down 1.70% while the Hang Seng lost -0.35%, Shanghai Composite is flat and Sensex is down -0.73%. The S&P/ASX 200 is down more than 2% since the beginning of the week and will close in red for the third consecutive day.

AUD/USD appreciated sharply in London and tested a 3-month high before consolidating slightly lower during the Asian session. The Aussie reached 0.8028 and is now trading around 0.7990. The closest resistance stands at 0.8067 (low from May 10th) while a support area could be found between 0.7884/0.7938 (previous highs).

USD/JPY didn’t move much as Tokyo was closed due to Shōwa Day, the first holiday of the Golden Week. Volumes are expected to be thinner than usual until May 8th. The dollar is consolidating around 118.80 and should find some support around 118.33/72 (multi lows). Despite the Golden Week, a lot of economic indicators are due during the following days, as well as the BoJ meeting on April 30th. We therefore expect erratic moves over the following days.

European stocks had a really tough day, DAX lost -1.89%, Euro Stoxx -1.48%, CAC 40 -1.81%, Footsie 100 -1.03% and SMI -0.95%. EUR/USD appreciated sharply to 1.0981 – 3-week high - and stabilized slightly below 1.0971 (high from March 23rd). The euro should find some buying interest above 1.1052 (multi high). However we do not expect much movement during the day as traders await the FOMC rate decision (GMT 6pm).

The sterling didn’t react much to the release of UK Q1 GDP, which came in weaker-than-expected at 2.4%y/y verse 2.6%, and moved higher on USD weakness. GBP/USD finally broke the 1.5266 key resistance (consolidation area from early March) and is now heading to the psychological level of 1.54. On the downside, the cable will find some support at 1.5256 (previous resistance).
EUR/CHF found fresh boost over the last 24h as trend gains momentum. The euro is currently trading above 1.05, a level last seen on April 6th. The depreciation of the Swiss franc against the euro didn’t allow the USD/CHF to move lower. The greenback is moving sideways since last Thursday and is currently trading at 0.9560^, at the bottom of its hourly range.

USD/BRL dropped amid release of higher-than-expected unemployment rate (62.2% verse 6.1% exp), increasing the probability of a rate hike from the BoB, before bouncing back to 2.9373. Brazil’s central bank is expected to raise the Selic rate by 50bps from 12.75% to 13.25% as inflation is running out of control, reaching 8.13% in March. We expect the BRL to appreciate further as traders will rush into the currency to play the carry.
Swissquote

In Asia, China’s inflation for March printed marginally higher to 1.4% y/y verse 1.3%. The lack of inflation pressure is keeping hope for additional easing alive, giving risky asset a boost. The Hang Seng consolidated gains from yesterday record high and stabilized around 13,784 while the Shanghai Composite is also green on the screen, up by 1.27% to 4,024 (both supported by the Chinese inflation figures). Australian equities rose by 0.61% as home loans approvals advanced 1.2% m/m in February verse 3% expected while reading for January was revised up from -3.5% to -1.7% m/m. AUD/USD currently sits on the 0.7688 key support (Fib 38.2% on March selloff), bids should jump in under 0.7660 (low from April 9). On the mid-long run, a support stands at 0.7533 (low from April 2). We expect the Aussie to depreciate further in the following weeks with the first target sets to the psychological level of 0.70.
EUR/USD is sliding slowly but surely, as the euro hit 1.0638 in the US yesterday. The greenback is getting closer to its March 15 low as sellers keep jumping in amid better than expected wholesale inventories (0.3% verse 0.2% consensus) and jobless claims (281k vs. 283k consensus, downward revision to last week to 267k from 268k). On the mid-term run our target is still set to the parity.

Yesterday BoE interest rate decision was a non-event. GBP/USD is treading water this morning after sharp moves yesterday and the break of 2 key supports (1.4803 and 1.4761). The cable is really close to the low from March 19 and should find some bids under 1.4689. Next support stands at 1.4635 (low from March 18). On the mid-long term, the sterling is getting through 1.4814 which is the low from July 2013. We therefore remain bearish on the sterling. WTI crude oil is still digesting the latest reading of US oil inventories and rose up by 0.08% while the Brent was up 1.64% while Iran’s Supreme Leader Ayatollah Khamenei said a deal is not guaranteed as Iran will sign no agreement that immediately lift all economic sanctions.

Today’s key event are the Manufacturing and Industrial Production in UK for February, the consensus are 0.4% and 0.3% m/m respectively. We may see some erratic movements on the news. In Canada, Housing Starts number is due at 12:15GMT and is expected at 175K as home prices in Canada are broadly seen as overvalued while low prices for oil and other commodities ease the pressure on housing activity; however majors hubs like Toronto and Montreal are cooling at a slower pace. The unemployment rate for Canada is expected to came in at 6.9% with a net change of 0k (up from last month’s -1k).
Swissquote Bank

All quiet in the FX market. Wall Street ended the day in positive ground while traders digested the minutes of the last FOMC meeting. Most US equity indexes depreciated sharply on the minutes release before bouncing back to their initial level; the S&P, Dow Jones and Nasdaq were up by 0.27%, 0.15% and 0.83% respectively. The dovish minutes revealed that the probabilities of a rate hike in June have diminished considerably as several members of the committee thought a progressive tightening wouldn't be guaranteed until later in the year or even in early 2016. More specifically, a few Federal Reserve officials are concerned that low oil prices and strong USD would likely hold inflation down. Oil prices took another hit yesterday and erased gains from last week. WTI is down 3.48% while its counterpart from the North Sea dropped 3.60% to 56.07. Pressure on oil prices shows no signs of weakness as US oil inventories rose 10.95mn barrels last week. EUR/USD is moving with a downward bias and is getting closer to its key support area of 1.0713/55 (low from March 31st and Sept. 2003, Fib 38.2% from March USD selloff) while the hourly RSI indicates the dollar is closed to be overbought. A break of 1.0713 would open the road to further USD appreciation. The next supports lie at 1.0685 and 1.0598 (Fib 38.2% and 23.6% respectively).
In Asia, the Nikkei consolidated gains from the previous session while the Hang Seng appreciated sharply to a max of 14,380, its highest level since November 2010, before stabilizing around 13,800. The rally was due to investors from mainland flooding into Hong Kong. On the short-term, USD/JPY is moving sideways as it get closer to the high from 2 days ago. On the long-term, the targets are 122.03 then 124.12, highs from March 13th and June 2007 respectively, however fresh boost would be needed to clear these levels.

In Europe, traders will be watching Halifax House Price from UK, BoE interest rate decision (11am GMT). Initial Jobless Claims in the US and New Housing Price Index from Canada this afternoon. Across the channel, EUR/GBP is stuck in its declining channel and tries to break the 0.7222/30 key support area while the cable erased gains from yesterday and is trading around 1.4860 this morning, getting closer to its nearest support of 1.4803 (low from April 7), next support stands at 1.4761 (hourly Fib 23.6% from mid-March) . The UK elections are weighting on the sterling as traders object to taking directional positions and seem to favor waiting until the end of the elections to take more risk.
Swissquote Bank