Forex markets at an intriguing tipping point as focus remains on the US data
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Transcript of Forex markets at an intriguing tipping point as focus remains on the US data
Weekly Outlook
Forex and CFDs are high risk leveraged products that can result in losses greater than your initial deposit and you should therefore only speculate with money you can afford to lose. FX and CFD trading are not suitable for everyone. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions. You should first carefully consider your investment objectives, level of experience, and risk appetite and only invest funds you are prepared to lose entirely. For our full risk warning, please go to the end of this report
20th April 2015 by Richard Perry, Market Analyst
Macro Commentary
One look at the yields on Greek debt and it is apparent that the market is getting scared again. The insistence of Yanis
Varoufakis (Greek finance minister) that Greece “is not compromised” by the process of coming to a compromise with its
creditors is driving negotiations to the edge again. Greece owes the IMF €747m on 12th May but the IMF has refused to
grant it an extension to the date. That means that negotiations with Eurozone finance ministers (the Eurogroup) are
critical if it is to avoid a potential move towards an exit from the Eurozone. The next tranche of its bailout is for €7.2bn
and as things stand it looks as though the Eurozone will not grant Greece the money it needs. A series of proposals on
pensions and economic reform have been treated with scorn, just like a teacher marking homework and writing “could
do better”. According to the bond markets the outlook is not good with some analysts suggesting the situation is closer
to a “Grexit” than any time over the past few years. However, the Eurozone and Greece specialise in this economic game
theory. It would appear that Varoufakis has a decent poker face, but he has met his match in Germany’s Schaeuble. In
this union that is more politically motivated than economically, kicking the can down the road has become an art form.
WHEN: Wed,22nd Apr, 0245BST
LAST: 49.6 (final reading)
FORECAST: 49.4
Impact: The deterioration in Chinese growth has
been a significant reason behind commodity price
weakness in recent months. The recent GDP data
showed a drop to 7.0% but according to certain
analysts the true rate could be below 5%. The
falling HSBC flash PMI is not helping expectations,
coming in below the 50 level (i.e. in contraction
mode) for 3 of the past 4 months. This month is
expected to remain below 50 again at 49.4 so
therefore deteriorating further. If this is the case it
could significantly impact on market sentiment
putting pressure on commodities and currencies
such as the Canadian Loonie, the Kiwi and Aussie.
Must watch for: China HSBC Manufacturing PMI
Key Economic Releases
Date Time Country Indicator Consensus Last
Tue 21st Apr 10:00 Eurozone German ZEW Economic Sentiment 55.5 54.8
Wed 22nd Apr 09:30 UK Bank of England Meeting Minutes 0-0-9 0-0-9
Wed 22nd Apr 15:00 US Existing Home Sales 5.05m 4.88m
Wed 22nd Apr 15:30 US Crude Oil Inventories 1.3m
Thu 23rd Apr 02:45 China HSBC Flash Manufacturing PMI 49.4 49.6
Thu 23rd Apr 09:00 Eurozone Flash Manufacturing PMI 52.6 51.9
Thu 23rd Apr 14:45 US Flash Manufacturing PMI 55.5 55.3
Thu 23rd Apr 15:00 US New Home Sales 520k 540k
Fri 24th Apr 09:00 Eurozone German Ifo Business Climate 108.4 107.9
Fri 24th Apr 13:30 US Durable Goods Orders (ex transport) +0.4% -0.4%
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China HSBC Flash Manufacturing PMI
N.B. Please note all times are GMT, data source Reuters
Weekly Outlook 20th April 2015
by Richard Perry, Market Analyst
Foreign Exchange
Ever since the FOMC removed the word “patient” from its statement, the US dollar has been significantly impacted by
the economic data. “Data dependence” has not fared the dollar well in the past week and this has pulled some of the
major pairs up towards some crucial levels. A series of weak data points including retail sales, industrial production, and
the Fed’s own Beige Book have all added to the pressure. However inflation is one of the key factors for the Fed and a
pick up in core CPI turned the tide on Friday. The timing could not have been any better, with pairs such as Cable (around
$1.5000), Dollar/Yen (at 118.30) and the Kiwi/Dollar (at $0.7700) trading around crucial levels which would have
constituted a dollar breakdown. The data for the US continues this week (albeit not tier one data) which could again see
these key levels tested if we see another series of weakness. Interestingly, the euro remains solidly rangebound with
around 300 pips of upside before any really key levels are tested. For now, I still see the dollar bull run remaining intact,
although another week like last week and I may have to start a rethink.
WATCH FOR: Focus remains on the dollar and the US economic data with New Home Sales, Flash
Manufacturing PMI and Durable Goods on the agenda. The China Flash Manufacturing PMI could be a
driver of sentiment for the commodity currencies. MPC meeting minutes will drive sterling.
EUR/USD
Watch for: The selling pressure to resume
between $1.0800/$1.0900.
Outlook: The last week of gains looks to be
dragging the euro back higher again and
should be another chance to sell. The
momentum indicators continue to suggest
that rallies will be sold into. There is a
resistance band of two near to medium term
pivot levels at $1.0800 and $1.0900 and
these resistances could easily be seen as
enough of an opportunity to take some
rebound profits off the table. A decline back
below $1.0700 would confirm the rally has
lost its way.
GBP/USD
Watch for: Another failure to close above
$1.5000 key resistance area
Outlook: Peaks on Cable rallies have all been
coming just under the $1.5000 resistance
band over the past few weeks. Friday saw an
intraday move above this band, but only to
fail (as positive US data came in to support
the dollar) and a sharp reversal has left us
with a shooting star candle which is a
corrective move. The close today needs to
be lower to confirm the move but the profit-
takers seem to have moved in. A failure to
close above $1.5000 will mean that Cable
can never really gain upside traction to
convince. The volatility with the UK General
Election is likely to continue.
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FX Outlook
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Weekly Outlook 20th April 2015
by Richard Perry, Market Analyst
Indices
Earnings season in the US is always a key driver of market sentiment and this one has started in positive vein. The big
banks have been managing to beat (admittedly significantly lowered) estimates, whilst a return on equity for Goldman
Sachs at 14% is an excellent achievement and suggests a strong recovery business flows. If this trend can be continued
then earnings season will be a positive driver of the S&P 500 once more. It needs it as the market remains stuck
rangebound again last week failing to make a move above the key resistance band 2115/2120. This comes despite the
supportive impact of a breakout on oil prices and also the weaker dollar (the strength of the dollar continues to be cited
as a reason for concerns in outlook statements form multi-national companies such as Johnson & Johnson). The selling
pressure on Friday afternoon on European indices (DAX, CAC and FTSE) came through amid euro strength, with the DAX
specifically negatively correlated to a stronger euro (due to its high weighting in exporters). It will be interesting to see
the extent of the hangover on European markets early this week on the negative sentiment news that a change I
regulations in China will allow fund managers to lend shares to enable short selling.
WATCH FOR: US earnings season will continue to drive Wall Street, whilst the DAX will be driven by
movement on the euro and news of developments for Greece. If euro related news settles down the gains
on commodity prices will have an impact on the FTSE 100.
DAX Xetra
Watch for: Sell-off needs to hold 11,620 key
support to prevent continued correction
Outlook: The sell-off of the past few days
has been remarkable, culminating in a 2.6%
and over 300 point decline on Friday. This is
really starting to impact on the outlook.
Momentum indicators are beginning to fall
sharply and the previously bullish medium
term outlook is on the brink of reversing.
The support of the key reaction low at
11,620 is key near term and a breach of the
support would be the first higher low broken
since the rally began in October. A retreat to
10,950 could be seen on the breakdown.
FTSE 100
Watch for: A close below 6975 would open
the channel lows currently around 6855
Outlook: The FTSE 100 has held up
reasonably well as the DAX has come under
significant selling pressure in recent days.
This continues the old relationship that FTSE
outperforms on the way down, but
underperforms on the way up. A retreat to
the breakout support at 6975 found support
on Friday and this is now a near term key
low. A close below would re-open a retreat
back towards the 4 month uptrend support
currently around 6855. Momentum
indicators suggest bullish configuration but a
near term correction could be due.
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INDEX Outlook
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Weekly Outlook 20th April 2015
by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
The breakout on oil has been the big news in the commodity space. The potential for lower supplies after OPEC lowered
its forecast for supplies out of non-OPEC countries to 680,000 barrels per day from the previous 850,000. This has had a
significant impact across both WTI and Brent Crude with a move to a new 2015 high. Lower than expected US oil
inventories have also impacted. Precious metals have become strangely muted in the past week. Previously performing
well against the US dollar, gold, silver and platinum have all been consolidating despite the correction on the dollar.
Greek bond yields are telling a story. As negotiations over Greece’s economic reform plans (sticking points being pension
reform proposals) continue to drag, German finance minister Schaeuble is not confident a deal can be reached. If you are
willing to lend to the Greek government for 2 years you can get around 27% yield for your risk. With a sharply inverted
yield curve the expectations of a default are escalating. Greece could be struggling to make a payment of €747m to the
IMF on 12th May. This could drive yields further higher this week. A Eurogroup meeting in Riga on 24th April could be key.
WATCH FOR: A further look at the US housing market could help to drive Treasury yields, whilst
commodity traders will watch the China flash manufacturing PMI to drive market sentiment
Gold
Watch for: A break of the range between
$1178/$1224 would drive direction
Outlook: The gold price continues to
consolidate. The range has formed
between $178 and $1224 in the past few
weeks and with daily momentum
indicators increasingly neutral the market
has settled into a sideways phase. The
sharp dollar weakness last week was
supportive but could not drive a breakout,
so we continue to wait for a decisive
move. A close below $1178 would re-
open the $1143 low, whilst above $1224
opens resistance at $1236.50.
Brent Crude oil
Watch for: Consolidation above support
band between $60.45/$63.00
Outlook: The outlook has taken a dramatic
improvement in the past couple of days
which has seen the oil price spike higher to a
new high dating back to mid-December. The
move entirely outside the daily Bollinger
Bands suggests stretched volatility and this
could initiate some consolidation in the near
term. With momentum indicators
continuing to improve the next step is to
form a basis of support to work from. The
previous 2015 high at $63.00 is the initial
support with a band of support back to the
gap higher from $60.45.
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COMMODITIES & BONDS Outlook
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This report is issued by Hantec Markets Limited, who is authorised and regulated by the Financial Conduct Authority (FCA) in the UK, No. 502635. The report is prepared and distributed for information purposes only. Trading in Foreign Exchange (FX), Bullion and Contracts for Differences (CFDs) is not be suitable for all investors due to the high risk nature of these products. Forex, Bullion and CFDs are leveraged products that can result in losses greater than your initial deposit. The value of an FX, Bullion or CFD position may be affected by a variety of factors, including but not limited to, price volatility, market volume, foreign exchange rates and liquidity. You may lose your entire initial stake and you may be required to make additional payments. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions. Before deciding to enter into FX, Bullion and/or CFD trading, you should carefully consider your investment objectives, level of experience, and risk appetite. You should only invest in FX, Bullion and/or CFD trading with funds you are prepared to lose entirely. Therefore, only your excess funds should be placed at risk and anyone who does not have such excess funds should completely refrain from engaging in FX and/or CFD trading. Do not rely on past performance figures. If you are in any doubt, please seek further independent advice. This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such. All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.
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Weekly Outlook 20th April 2015
by Richard Perry, Market Analyst