Vantage FX Daily Market Update

[Vantage FX]

Odds on a Melbourne Cup Rate Cut?:
While the eyes of the Australian public are on Melbourne for the ‘race that stops a nation’, the eyes of the financial world turn to Sydney for the interest rate decision out of the Reserve Bank of Australia.

Last month the RBA left the Cash Rate on hold but surprising with their dovish tone. The statement that accompanied the decision gave the Aussie some buying interest, pushing the pair back above weekly trend line support that we have been watching price chopping around, but overall respecting.

AUD/USD Weekly:

Click on chart to see a larger view.

Whichever way you look at it, today’s decision is very much live and the Aussie dollar in play. With futures markets pricing in a 42% chance of a cut, expectations are low enough that either way the RBA goes, the Aussie will spike. But at those levels, a surprise cut could do some serious damage to the charts!

AUD/USD Hourly:

Click on chart to see a larger view.

Soft inflation numbers, export pressure from China and falling consumer confidence has a cut well and truly in play for mine and with the greater risk to the downside, I like this hourly level to manage upside risk around.

The RBA is under even greater pressure to cut following the big 4 bank’s decision to raise mortgage rates out of cycle with the central bank. The banks have blamed their own hikes on new Australian policies aimed at making banks safer that require them to hold more capital and therefore be more resilient to economic shocks to the system. Of course any increased funding costs are always going to be passed down the chain to the consumer and that’s exactly what Australia has seen here.

In an already weak consumer environment, this could have been the last nudge that the RBA needed to cut, potentially forced to limit the effects of the bank’s moves on consumer confidence and spending.

Lastly, something for you punters out there. Something to keep in mind is that the RBA has made its move on Melbourne Cup day in 6 out of the last 9 years. If you’re backing a horse, maybe your focus should be on the RBA instead?

Well, I think I just might take a Trip to Paris at 3pm anyway. Au revoir!

———

On the Calendar Tuesday:
JPY Bank Holiday
AUD Cash Rate
AUD RBA Rate Statement

GBP Construction PMI

———-

Chart of the Day:
We continue our Aussie dollar theme with a look at the EUR/AUD cross in today’s chart of the day.

EUR/AUD Daily:

Click on chart to see a larger view.

After breaking key resistance at daily swing highs in August, price has since pulled back to the level and re-tested it as support. Price spiked down through the lows to clean out any weak longs (and their lazy stops) before gaining some traction and rallying back up.

In this bullish move, price had also formed a short term trend line that was broken as it re-tested key horizontal support. As this is a cross, I don’t like putting too much weight into trend lines, especially short term, steep trend lines like this one, but the re-test is there all the same.

Even if we get an ‘on hold’ decision from the RBA, it is sure to be accompanied by a more dovish statement from the RBA. If this scenario plays out, falls in EUR/AUD seem limited. Like I said, banking on these steep, short term trend lines holding on the crosses is not something that you would risk your house (or your trading account) on. Buying dips back into support looks my favoured play into the RBA.

Do you see opportunity trading the Australian Dollar around the RBA?

 

[Vantage FX]

RBA Hawkish? Huh?:
Following the Reserve Bank of Australia’s decision to yesterday leave interest rates unchanged, the Aussie dollar doesn’t really know where it is at the moment. Hawkish, hawkish, hawkish. All I read is hawkish. But how is this line hawkish?

“Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand.”

Sure the RBA noted that conditions have firmed over the last few months and offshore improvements have helped to stabilise the Australian economy but I can’t help but look at trading the Aussie from the point of view of a fader.

The AUD/USD hourly chart in yesterday’s Daily Market Update had an hourly resistance zone in which we thought that sellers could potentially smash the Aussie down inside if we got there.

AUD/USD Hourly:

Click on chart to see a larger view.

The hawkish perception got us there and the buying couldn’t be sustained, giving us multiple entries short if you were active throughout London.

With the horses and RBA behind us, attention now turns to the run in to Friday’s all important NFP release. Traders are cautious about the labour market data confirming any perceived hawkish bias from the Fed. Stay alert for ADP in the lead up tonight, possibly giving us a clue either way.

Enjoy your hump day!

———

On the Calendar Wednesday:
NZD Employment Change q/q
NZD Unemployment Rate
AUD Retail Sales m/m
AUD Trade Balance

EUR ECB President Draghi Speaks
GBP Services PMI

USD ADP Non-Farm Employment Change
CAD Trade Balance
USD Trade Balance
USD Fed Chair Yellen Testifies
USD ISM Non-Manufacturing PMI

———-

Chart of the Day:
Going to give some love to one of the lesser traded Commodities on the Vantage FX Market Watch: Palladium.

“Palladium is a chemical element with the symbol Pd and atomic number of 46. This metal was named after the asteroid Pallas, which was itself named after the epithet of the Greek goddess Athena.”

XPD/USD Daily:

Click on chart to see a larger view.

The setup is just an overall bearish trend line with price flagging almost vertical back up to test the resistance level again. The fact that resistance lines up with the previously broken horizontal support level adds some confluence to the level. Keep your eye out for any short term resistance levels forming or slow down in price momentum and fading into it looks to be the play here.

The volume that goes through our Palladium book is minuscule in comparison to big brothers Gold and Silver but this post has me on a mission to find a successful trader with Palladium (or Platinum!) incorporated in their strategy. If you trade it yourself or know someone else that does, give @VantageFX a mention over on Twitter or leave a comment at the bottom of this post.

Do you see opportunity trading Palladium?

 

[Vantage FX]

Testify!:
Testifying on bank regulation before the House Financial Services Committee in Washington DC, Janet Yellen still managed to give markets some juicy monetary policy comments to sink their teeth into! While not delivering anything ground breakingly new, the fact that Yellen was able to reiterate the Fed’s stance that December was actually in play again is hugely significant.

With Yellen (and Dudley chiming in at his own delivery in NYC) saying that interest rates could increase in December, the qualifying statement of ‘if the data supports the move’ is always there. Either way, this saw the US Dollar move higher across the majors board overnight and sets the scene nicely for the labour market numbers come Friday night.

The most recent ISM Non-Manufacturing report also shed some light on the future direction, beating expectations quite handsomely.

“USD ISM Non-Manufacturing PMI (59.1 v 56.6 expected)”

Check out the whole raft of Fed speakers in the Calendar section below, the pre-NFP action is only going to heat up from here!

Across the Atlantic:
Elsewhere across the Atlantic, we have the Bank of England meeting to come. With this recent USD strength, Cable sits in an interesting technical spot.

GBP/USD Daily:

Click on chart to see a larger view.

I’ve been watching price tease the stops above these clean highs for a while now, and can’t help but think it’s only a matter of time before they get the clean-out that they deserve.

Clean highs like this never last. Could tonight’s BoE decision be the catalyst for a sweep?

———

On the Calendar Thursday:
AUD RBA Gov Stevens Speaks
JPY Monetary Policy Meeting Minutes

EUR ECB President Draghi Speaks
GBP BOE Inflation Report
GBP MPC Official Bank Rate Votes
GBP Monetary Policy Summary
GBP Official Bank Rate
GBP BOE Gov Carney Speaks

USD Unemployment Claims

———-

Chart of the Day:
Damn. No bites in my search for a successful Palladium Trader. I guess we’ll have to leave the search running in the background and turn our attention to Gold. You have to fish where the fish swim after all!

XAU/USD Daily:

Click on chart to see a larger view.

After what looked like the beginnings of a promising recovery rally, Gold as had a bit of a fall from grace. Still trapped below its most recent weekly resistance level, the move away from it has been hard and fast.

Price has now come to the bottom of it’s short term channel. It looks to have broken the level, but with no pull-back and still no break of swing lows, there’s no way I can sell this here.

I’m waiting for the pull-back and happy to sell any weakness.

Do you see opportunity trading Yellen's Testimony?

 

[Vantage FX]

Thereof Dove:
The Bank of England overnight signalled that interest rates will not be lifted off record low levels any time soon. The Bank of England Monetary Policy Committee voted 1-0-8 (increase-decrease-hold) with Ian McCafferty the only dissenter.

BoE policymakers left rates on hold at 0.50% and even signalled that they aren’t closed to cutting again if the data warrants the move. Yes, this opens up the possibility of negative interest rates.

The bank’s quarterly inflation report released alongside the decision showed positive projections into the new year but at a slow rate and not positive enough to tilt their hand. But it was again global uncertainty that weighed on the BoE and ultimately pushed them towards the dovish release.

GBP/USD 15 Minute:

Click on chart to see a larger view.

As you can see pretty clearly, sellers jumped all over Cable and knocked it down near 200 pips. With any rate increases in the short term off the table, who wants to be long at those prices?

Nobody.

———

On the Calendar Friday:
AUD RBA Monetary Policy Statement
JPY BOJ Gov Kuroda Speaks

GBP Manufacturing Production m/m

CAD Employment Change
CAD Unemployment Rate
USD Average Hourly Earnings m/m
USD Non-Farm Employment Change
USD Unemployment Rate

———-

Chart of the Day:
With Kuroda on the calendar today, we take a look at USD/JPY as today’s chart of the day.

USD/JPY Daily:

Click on chart to see a larger view.

With today’s daily candle, price has now entered the support/resistance zone that price has previously rejected hard from multiple times. The strength of these rejections is the important factor in making this level key.

On the other hand, it is such a clean level (inside an equally clean range) so there will no doubt be stops sitting just above here. It’s a range, and you have to keep playing the range until it’s not, but fading into the level is the mug’s trade. I like the play where we wait for any stops to be cleaned out above the level before shorting on confirmation that price is going to tuck back into the range.

Do you see opportunity trading the Bank of England decision?

 

[Vantage FX]

We’re Back On!:
Just some light Monday morning reading to ease you back into your trading week.

After Friday night’s NFP carnage, the majors have this morning opened with slight gaps down that they are quickly racing to fill. The following AUD/USD 5 minute chart shows the carnage and the open quite well:

AUD/USD Daily:

Click on chart to see a larger view.

The October US Non-Farm Payrolls report on Friday night came in at 271K compared to the 181K expected and a revised 137K previously. This 271K jobs gained was the strongest hiring pace this calendar year, adding fuel to the fire that lift-off in December is all but a formality.

These stellar numbers were backed up by comments from San Francisco Fed President John Williams who was speaking on Saturday at an education event in Tempe, Arizona. Williams spoke about why The Fed inserted a reference to its next meeting in its last release and tried to smooth market sentiment again.

“To my mind, the decision was a close call, in part reflecting the crosscurrents we’re navigating.”

“On one hand, the U.S. economy continues to grow and is closing in on full employment. On the other, in large part due to developments abroad, inflation has remained lower than we’d like.”

We’re back on!

———

On the Calendar Friday:
A quiet start to the week in terms of tier 1 data releases but we did get a juicy set of trade numbers out of China over the weekend which we can take a look at.

CNY Trade Balance (393B v 367B expected)

With Chinese imports again being smashed and a record trade surplus of $61.6 billion, the Chinese government has again had more pressure put on it to keep easing. The major contributing factor was again weaker than expected demand for commodities.

———-

Chart of the Day:
A post-NFP look at one of the more important majors in today’s chart of the day.

EUR/USD Daily:

Click on chart to see a larger view.

After the NFP induced drop, price looks to have held that clean re-test of broken channel support. Is price going to reach the next level of support and look to make a new push toward parity?

Do you see opportunity in Trading Interest Rates?

 

[Vantage FX]

Image: Data Center Dude

Week of the Acronym:
Welcome back to your trading desks after markets long weekend. The calendar will tick over to December tomorrow, meaning the erratic run into Christmas is now upon us. But first, we have a HUGE week of data releases and central bank action which will see no serious traders going anywhere for the time being.

RBA, AUD GDP, NPF, ECB, ABCDEFGHIJKLMNOP! It certainly is the week of the acronym and with just about every big player or release coming up, you can see where today’s featured image comes from! Keep your eye on the (soon to be revamped) Forex Economic Calendar and we’ll be going over each release in more detail as the week progresses on the blog.

Yuan:
The International Monetary Fund (IMF) meets today and is expected to make the huge call of giving the Chinese Yuan reserve status. By adding the Yuan to the basket of currently elite currencies (the US Dollar, Euro, British Pound and the Japanese Yen), it gives countries the option to use the Yuan to meet balance of payment needs as well as the hugely significant political traction that comes with it.

Today’s meeting will see the release of what weighting the Yuan will be assigned within the basket, with estimates of around 15% seeming to be the expected consensus. The weighting is important because it will affect the amount of interest that countries will be required to pay when borrowing from the IMF.

“Currently the weighting is USD: 41.9%, EUR: 37.4%, GBP: 11.3% and JPY: 9.4%.”

So what is the significance of this move on currencies? We saw this from ratings agency Fitch over the weekend:

“Fitch does not expect this to lead to a material shift in demand for renminbi assets globally in the short term. Over time, the emergence of the renminbi as a global reserve currency could support the credit profile.”

This is partly because it won’t be included in the new basket until the 3rd quarter of 2016, but by endorsing the Yuan, it has the potential to be viewed as a ‘coming of age’ for the emerging Chinese economy and will definitely have an effect on demand further down the track.

USD/CNH Daily:

Click on chart to see a larger view.

If you haven’t already, it’s worth adding our new offshore Yuan (Renminbi) product to your Vantage FX MT4 platform watch list.

This is one of the most exciting Forex market progressions for a long time!

Black Friday Retail:
Black Friday shopping in the US flopped this year, with so called ‘bargain hunters’ failing to open up their wallets in large numbers on retail’s flagship day.

After being involved in the black Friday madness myself a few years ago, I just don’t get the hype. People are scrambling through crowds at 2am to buy ridiculous items like toothbrushes because they’re discounted by $1!

The drop in numbers was partly down to the fact that stores can now open on Thanksgiving itself, spreading the shopping load out over the weekend. Of course also with each year that online shopping becomes more and more accepted (and its ability to compare prices to get a REAL bargain) as the norm, these Black Friday Fail headlines will continue to come.

This is why I’m not reading too much into these stories and don’t expect any major drag on the back of them for the Fed.

———

On the Calendar Monday:
NZD ANZ Business Confidence

USD Chicago PMI
USD Pending Home Sales m/m

———-

Chart of the Day:
With the US Dollar forging to new highs, we today take a look at where Cable sits to start the busy week.

GBP/USD Daily:

Click on chart to see a larger view.

After dropping hard to kick off November, Cable then spent most of the month clawing back most of those losses. Importantly however, price never fully retraced the entire ‘gap’ and was rejected almost as hard again to end the month back on its lows today.

We have some parallel lines that line up with lows on the daily that are highlighted here but with this sort of price action, I would be more inclined to use this channel as an indication that the sellers are large and in charge rather than be looking to play any bounce. I just can’t find a technical argument that would make me want to buy against the trend at a weak bearish channel bottom.

Are you bearish Cable?

 

[Vantage FX]

Image: interestingmoney.com

Build up to the RBA:
December the 1st? Wow, somebody tell me where 2015 went?!

With today also the 1st Tuesday of the month, the Reserve Bank of Australia meet today for what is expected to be a fairly uneventful release. After last week’s comments about chilling out(God I love the RBA), the market has all but priced out any chance of another cut before Santa drops down our chimneys.

“I’m more than content to lower it if that actually helps, but is that the best thing to do at a particular time?”

“As for February, that’s three months away, we’ve got Christmas, we should just chill out and see what the data says.”

AUD/USD 15 Minute:

Click on chart to see a larger view.

As you can see from yesterday’s trading session, the Aussie traded higher heading into the release, bucking the trend of USDX strength. There has been slight improvement in the data outlook for the Australian economy lately, but with commodity prices continuing to get hammered far and wide, even from a chilled out Glenn, there is an expectation that we could see some jawboning of the Aussie.

I just love this AUD/USD weekly trend line. Even though the line is subjective and has been chopped through up and down multiple times even before yesterday, look at those clean touches on the 15 minute chart. Beautiful.

China Bonus:
The International Monetary Fund yesterday approved China’s Yuan to join its benchmark currency basket.

As we spoke about yesterday, this move was widely expected and there was no real shock in the 10.9% weighting that it was given. The move won’t come into effect until October next year, so there hasn’t been and won’t be much of a near term USD/CNH re-rating. It is however, a huge political win for the Chinese government.

USD/CNH Daily:

Click on chart to see a larger view.

Have you added USD/CNH to your MT4 watch list yet? Trade the US Dollar against the offshore Chinese Renminbi (Yuan) with Vantage FX.

———

On the Calendar Tuesday:
CNY Manufacturing PMI
CNY Caixin Manufacturing PMI
AUD Cash Rate
AUD RBA Rate Statement

GBP Bank Stress Test Results
EUR PMIs
GBP BOE Gov Carney Speaks
GBP Manufacturing PMI

CAD GDP m/m
USD ISM Manufacturing PMI

———-

Chart of the Day:
Let the bells ring out, the Swissy is once again ABOVE the SNB Floor Level!

USD/CHF Daily:

Click on chart to see a larger view.

The daily chart shows that both the initial floor level has been cleared, as well as the highs of the candle that spiked in the week before the rug was pulled out from under us. Price is now flirting with this high.

USD/CHF Hourly:

Click on chart to see a larger view.

On the hourly chart, we can see the bullish price action where price ripped out of the zone basically without a single pull back. A picture of strength, but the pull-back will come.

Do you see opportunity trading the RBA decision?

 

[Vantage FX]

Image: FT

Data Dependant? ISM Back to Recession Territory:
With Glenn Stevens and the RBA chilling out into Christmas, the big overnight storyline was the slumping US manufacturing sector.

“USD ISM Manufacturing PMI (48.6 v 50.6 expected)”

That’s a fall below 50 for the first time since November 2012, and was also the weakest reading since June 2009. How was the US economy going in June 2009 you may ask? It was in recession!

That is not what an overly long USD Forex market wanted to hear, let alone a Fed that has cornered itself into a December rate hike already.

The following charts from Zero Hedge highlight the fact that the last time the manufacturing sector was this weak, the Fed was actually printing money…

Yet now they are going to hike? Whatever your opinion on ZH, when the Fed is waiting for data to give the go ahead on raising rates, those charts are pretty eye catching.

Now to the charts, where we’ve been talking about how long USD the market is heading into December and the possibility of trading a short squeeze in EUR/USD.

EUR/USD Daily:

Click on chart to see a larger view.

With the USD finding some sellers overnight, the Euro received its first little kick out of our buy zone. That kick has at least given us some short term areas to manage our risk around and is something that we’ll be talking about in the Technical Analysis section of the Vantage FX News Centre as we finish the week.

———

On the Calendar Wednesday:
AUD RBA Gov Stevens Speaks
AUD GDP q/q

GBP Construction PMI

USD ADP Non-Farm Employment Change
CAD BOC Rate Statement
CAD Overnight Rate
USD Fed Chair Yellen Speaks

———-

Chart of the Day:
A return to clean, clear charts for today’s chart of the day!

AUD/USD Daily:

Click on chart to see a larger view.

While still taking in the longer term view of AUD/USD price tucking back above weekly trend line support, today’s chart strips everything back to the basics in search of a long entry.

Price has broken out of its short term bearish trend line and re-tested previous resistance this time as support. From here, the noted Aussie Dollar strength has helped kick price off the level hard, printing the biggest bullish daily candle for quite some time.

How does ISM Back to Recession Territory affect the Fed? Read more in the Daily Market Update on the Vantage FX News Centre.

 

[Vantage FX]

Image: The Independent

ECB Today; Beware of the Crowded Trade:
It’s not a question of if, but rather by how much Draghi and the European Central Bank will increase its stimulus program tonight. Still fighting off the lingering effects of deflation on the stuttering European economy, Draghi has pledged to do whatever it takes to give the economy the kickstart required.

“Whatever it takes!”

Striking huh. Well, traders have known this for months now and there will be no surprises when the lever on the printing presses stays firmly pushed in the on direction heading forward. Consensus seems to be that the Euro is heading to parity but with the market already heavily short and most of what’s coming priced in, we could need one a hell of a damning set of details to see any hard drops in the Euro sustained.

Key details to keep an eye on after the release are whether the deposit rate was cut by 0.1% or 0.2% as well as any clues as to how far after September 2016 the QE end date will be pushed back to. I have heard chatter of a monthly bond buying increase of 20 billion Euros, as well as an extension somewhere deep into 2017 seen as likely.

EUR/USD 15 Minute:

Click on chart to see a larger view.

If there’s chatter, then you know that markets have priced at least a good portion of this into the market already. Beware the crowded trade.

Keep in mind that overnight the sometimes criticised ADP Non-Farm Employment Change report was released, beating the 191K expectation by adding 217K jobs to the economy. The Fed will be happy if NFP gives a similar number. Overall employment beats will trump manufacturing misses every time.

Stay smart out there.

———

Featured on the Forex Calendar Thursday:
AUD Trade Balance

GBP Services PMI
EUR Minimum Bid Rate

EUR ECB Press Conference
USD Unemployment Claims
USD Fed Chair Yellen Testifies
USD ISM Non-Manufacturing PMI

———-

Chart of the Day:
Further to yesterday’s AUD technical analysis post, we stick with the Aussie Dollar theme and today take a look at a couple of AUD/CAD charts.

AUD/CAD Weekly:

Click on chart to see a larger view.

The AUD/CAD weekly chart follows the familiar pattern of short term AUD strength encountering channel resistance.

AUD/CAD 4 Hourly:

Click on chart to see a larger view.

The strength followed by the resistance price has encountered is shown perfectly on the 4 hour chart. From here, I am watching the way that price is coiling on the clean double top that it has presented us where we know stops are accumulating above.

Are you aware of the crowded EUR/USD trade?

 

[Vantage FX]

Image: MarketWatch

Mario Draghi, was that Doing Whatever it Takes?:
Mario Draghi and the European Central Bank rocked markets to the core overnight, with cuts and stimulus that nowhere near met market expectations.

By reducing its deposit rate by only 0.1% to -0.3% (the market wanted -0.4% to -0.5%) and signalling that it would extend its QE stimulus program into March 2017 (the market didn’t even expect a hard date cap) at a current rate of €60 billion a month (again, €75 billion + spoken about), saying expectations were missed is certainly an understatement!

These measures were a far cry from the hard-line ‘whatever it takes‘ type rhetoric that Draghi consistently delivered leading into the meeting and the Euro reacted accordingly by experiencing the mother of all short squeezes.

EUR/USD Daily:

Click on chart to see a larger view.

Boom indeed. When expectations are unanimous toward an event and the market is positioned for the one and only possible outcome, it only takes a small miss for a huge re-pricing to occur as the herd scrambles to close positions at any price they can.

Vantage FX has managed to get our hands on exclusive Euro trade vision of this mad liquidation of Euro shorts at the time of the release:

Just think, this is the most liquid Forex pair and it just rallied almost 500 pips in a single day. That means a huge miscommunication to the market from the ECB and something that in all honesty, just shouldn’t happen.

Where to now for EUR/USD?:
With a still packed USD sensitive economic calendar tonight featuring a hugely anticipated NFP release, lets just say that things may get a lot worse for Euro shorts before they get better…

EUR/USD Daily 2:

Click on chart to see a larger view.

With EUR/USD still really in no-man’s land on the daily chart, I have thrown on the fibs to try and give us some possible areas of logical selling. I have marked the key 50-61.8% zone which also lines up with the underside of our counter trend, flag trend line.

With the market expecting a decent NFP number after this week’s ADP beat, if the US economy doesn’t deliver then an instant shot into that area is a real possibility.

———

Featured on the Forex Calendar Friday:
AUD Retail Sales m/m

CAD Employment Change
CAD Trade Balance
CAD Unemployment Rate
USD Average Hourly Earnings m/m
USD Non-Farm Employment Change
USD Unemployment Rate

———-

Chart of the Day:
Stock indices traders didn’t escape unscathed either, with the German DAX taking a heavy 3.6% hit.

DAX30 4 Hourly:

Click on chart to see a larger view.

This chart shows just a simple parallel line taken from resistance, drawn from a logical previous swing low to find a potential area of support.

With horizontal resistance still a bit lower, this isn’t a level to be blindly buying off, but it could act as a short term level to determine trading direction off of.

Do you see opportunity trading the ECB fallout?