Sive Morten
Special Consultant to the FPA
- Messages
- 18,669
Fundamentals
(Reuters) The dollar dropped on Friday after data showed that the U.S. economy grew at a slower pace than expected in the second quarter, while the Japanese yen soared after the Bank of Japan’s stimulus plans underwhelmed investors.
U.S. gross domestic product increased at a 1.2 percent annual rate, the Commerce Department said. Economists polled by Reuters had forecast GDP growth rising at a 2.6 percent rate in the April-June period.
"There were some aspects of the GDP report that were not nearly as weak as the headline, but the headline affirmed that the Fed could wait for a while,” said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York.
The dollar has fallen since the Federal Reserve's statement from its policy meeting on Wednesday disappointed some investors who had thought the U.S. central bank might signal that a rate increase was possible in September.
Improving economic data in recent weeks has led many economists and investors to bring forward rate expectations, after previously pricing out the likelihood of a hike this year. December is seen as the most likely month for an increase.
The dollar index .DXY, which tracks the greenback against a basket of six major rivals, dropped 1.22 percent to 96.566, the lowest level since July 5.
Weakness was likely exacerbated by investors unwinding popular trades entered into before this week that the greenback would continue to strengthen on a hawkish Fed and a highly stimulative Bank of Japan.
The yen soared after the BOJ disappointed investors who had expected bolder measures to stimulate growth and raise inflation in Japan’s ailing economy.
The yen 3.05 percent against the dollar to 102.04 yen, the highest level since July 11.
Japan's central bank doubled purchases of exchange-traded funds (ETFs) and said it will conduct a thorough assessment of the effects of negative interest rates and its massive asset-buying program in September, suggesting that a major overhaul of its stimulus program may be forthcoming.
"I think the market's going to be punting this back and forth as to whether this is really a disappointment or whether they are playing for time," said Steven Englander, global head of foreign exchange strategy at Citigroup in New York.
Next Friday’s U.S. employment report for July will be the next major indicator under scrutiny for clues on the strength of the U.S. economy.
So, guys, today we wil shift to Asia-Pacific region and will take a look at recent China stats and NZD dollar. Mostly because weak US GDP has erased our short-term bearish setup on EUR and we need some time when market will form something else. Long-term EUR view still stands the same, but we already have discussed it last week.
But on NZD we have very nice short-term setup...
News in Charts: China data confirm doubling down
by Fathom Consulting
China’s National Bureau of Statistics released its 2016 Q2 GDP growth estimate last week. At 6.7% in the four quarters to Q2, it sat comfortably within Beijing’s target range. On a quarterly basis, GDP grew by 1.8%. This was up from 1.2% in Q1, the slowest pace since figures were first published in 2011.
Last week, China’s National Bureau of Statistics released its preliminary estimate for second quarter GDP growth, beating most national statistical agencies by several weeks. Coming in at 6.7% in the four-quarters to 2016 Q2, it sat comfortably within Beijing’s target range of “between 6.5% and 7.0%” and was the same as that achieved in the first quarter. However, we remain skeptical about the accuracy of China’s GDP data. Not only are they published with surprising efficiency, the headline growth figure remains well above our own gauge of China’s economic activity — our China Momentum Indicator (CMI) — which suggests that growth is closer to 2.4%.
On a quarterly basis, China’s official GDP grew by 1.8%. This was up from 1.2% in Q1, the slowest pace since quarterly growth figures were first published at the beginning of 2011. Accordingly, both our CMI and official GDP data suggest that China’s dramatic slowdown bottomed out in the first quarter of this year. This is in line with our view that China’s policymakers are in the process of ‘doubling down’ on investment in a bid to kick-start the economy.
The monthly statistics released alongside last week’s GDP data reaffirm that view, pointing to China’s pursuit of short-term growth objectives at the expense of rebalancing. Indeed, indicators most closely linked to China’s tried-and-tested growth model, electricity production and bank lending growth, picked up last month. In addition, growth in fixed-asset investment by private enterprises fell to a record low in the first half of the year compared to the same six months a year ago. Meanwhile, the equivalent figure for state-owned enterprises rose by 23.5%.
Although unsustainable, this pick-up in economic activity has been received positively by Chinese investors and consumers alike. The National Bureau of Statistics’ Consumer Confidence Index rebounded to 102.9. A figure above 100 shows that consumers are becoming more optimistic. Meanwhile, the Shanghai stock index has gained around 6% since the UK voted to leave the European Union – suggesting that China worries have been superseded by Brexit.
Interestingly, the People’s Bank of China appears to have used the UK referendum result to allow the renminbi to fall to a five-and-a-half year low against the US dollar, avoiding the financial turmoil which followed the devaluation last August. In effective terms, the renminbi has declined steadily throughout the year. This is in line with the path that we set out three months ago in our Global Economic and Markets Outlook for 2016 Q2. Looking ahead, we expect the gradual depreciation of the renminbi to continue, alongside two or three interest rate cuts by the end of the year.
COT Report
As we've mentioned above - today we will take a look at NZD. To be honest, guys, we're mostly interested in short-term setup for 1-2 weeks at maximum. Probably even for 1 week, till NFP release. That's why we will take a look at COT data, but as our setup mostly is a short-term, we do not need it too much, I suppose.
It is interesting, that net speculative position on NZD stands around zero. It means that there are equal amount shorts and longs. Recent action mostly looks bearish, because as price was moving higher open interest was tending lower. It tells that upward action mostly was based on closing of some shorts.
In relation to long-term picture, this combination warns us against taking long-term long position on NZD. Situation could change on next week as we will get data after Fed and poor US GDP numbers. Also it is a question though, what NFP data we will get...
Confirmation of some kind of indecision on NZD also comes from Diary market. Thus, according to Rabobank research:
Global deliveries of milk have started to fall, while dairy markets are showing only modest demand growth. Despite upward movement in prices at the end of Q2 growing inventories will continue to overhang the market as the world works its way through the current glut, according to the Rabobank Global Dairy Quarterly Q2 2016:
"Global deliveries of milk have started to fall, while dairy markets are showing only modest demand growth. Despite upward movement in prices at the end of Q2 growing inventories will continue to overhang the market as the world works its way through the current glut, according to the Rabobank Global Dairy Quarterly Q2 2016.
In Q2, the world’s farmers started to react to protracted lower farmgate prices by slowing growth in production—as anticipated, production will start to fall in response to low farmgate prices, leading to sharp reductions in export surpluses. Despite higher buying from China in the first half of the year, poor economic performance, low oil prices and geopolitics continue to weaken demand in many regions. Global stocks continue to increase, with current stocks estimated to stand at 6.4m tonnes higher than the five-year average in liquid milk equivalent (LME) terms, representing around 7.5% of annual trade.
Rabobank continues to forecast that prices will start to increase in 1H 2017, but high levels of stock and weak global demand can threaten this. In addition the decision of Britain to leave the EU could skew global competition if as forecast the euro weakens increasing the competitiveness of European products in export markets.
“While we still forecast prices to rise in 2017, these risk being dampened by continuing weak demand due to low oil prices, trade bans and lack of affordability in emerging markets,” says Kevin Bellamy. “As a result, the light at the end of the tunnel remains undimmed.”
Technicals
In huge time scale perspective (this is probably not even monthly chart), we have big AB=CD pattern. NZD has turned to downward action in summer 2014 and has not reached it's target. It means that sometime it will turn to upside action again and could hit estimated 0.92 area.
Our discussion of this setup has started as soon as market has reached major 5/8 monthly Fib support @ monthly Oversold (not shown). Situation on NZD long-term picture is very contradictive. From one side we have thurst down and upside retracement from major Fib support, that takes the shape of bearish flag.
But, from the other one - NZD has moved above YPP, it has broken very strong weekly K-resistance and Agreement that happens very rare. It means that something probably stands beyond this action. Although we do not have real thrusting action here, but still action is up and trend is bullish on monthly chart.
We do not have any assistance from fundamental information as well. COT data as well as overall situation around NZD mostly tells that it is balanced and no one side has some advatage over its rival.
Taking it all together, it seems that NZD has some short-term upside momentum and currently we have no reasons for bearish view on NZD. Especially after our strong weekly resistance has been broken up...
Weekly
Here guys, the pattern that is attracted my attention. And in general overall recent price action. We have bullish stop grabber on weekly chart with 150+ pips upside potential. Here we use only minimal target - just the previous top. But, NFP could be bad, and this will be another nail in USD tomb together with Fed dovish comments and poor GDP. In this ultimate case, NZD could even reach our AB=CD 1.618 target...
Speaking on overall action, current dive down could be re-testing of previously broken our rock hard resistance area - weekly Confluence and Agreement with AB-CD target. Markets never break such levels without any respect just ocasionally. This happens only some really strong support power stands beyond the market. Almost "rule of thump" action is re-testing this strong area afer breakout. May be something of that sort we see now...
Thus our setup is based on pattern - bullish stop grabber on weekly chart and on overall price behavior.
Daily
So, let's take a look what we have on daily chart. Some really important issues... As around trend line as near upside reversal point there is a cluster of Fib levels stands. NZD barely has touched K-support and turned up.
Trend has turned bullish, MACD shows very strong angle of line crossing, and, guys, looks like we have bullish divergence with MACD right around daily K-support.
On a way up market has reached overbought area and we probably will need some pullback for joing the trade:
4-hour
On intraday charts we see more details. Thus, take a look how this uward action has started. Right at the bottom in blue circle NZD has shown shy W&R of the lows. Long tails suggest existence of good purchasing and real support. After that market has started move up.
This time frame points on 0.7125 area as most suitable for searching "Buy" signals. As we will get two new pivots - August and weekly, market will try to test it. As NZD is overbought, then retracement should not bee too small. Thus, K-support around pivots seems as good setup.
Hourly
NZD right now is a goldmine of patterns. Right now we've discussed weekly setup, but on the hourly chart we have two potential setups as well. They might be interesting to scalp traders.
First one is DiNapoli "Kibby trade" this is a kind of "Stretch" pattern. But Stretch is a combination of Fib level and OB/OS area. "Kibby" is a combination of AB-CD target and Overbought, but it suggests the same way of action as Stretch. Take a look that NZD has reached 1.618 AB-CD target on hourly chart and it stands at overbought on daily chart. According to DiNapoli framework, dealing with Kibby trader should wait when hourly trend by MACD (in our case this is hourly time frame) will shift bearish. Then you need to wait minor upside retracement to Fib level and take a scalp short position. Target will be AB-CD extension, based on first drop.
Second pattern is minor DRPO or B&B. I place Fib levels of this thrust. But as market stands at OB on daily - DRPO here is more logical. Thus, may be Kibby and DRPO will become a single trade, we will see...
But for us, major object is weekly bullish grabber and long entry opportunity...
Conclusion:
Currently it is difficult to estimate long-term view on NZD. Although recent action was bearish, but right now kiwi shows an action that is not typical for bearish market. It could mean that currency stands in some starting point of changing long-term situation.
At the same time, we are interested in particular setup on weekly chart, that is bullish grabber. Our trading plan suggests expecting a retracement in the beginning of the week and then watching for possible long entry.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
(Reuters) The dollar dropped on Friday after data showed that the U.S. economy grew at a slower pace than expected in the second quarter, while the Japanese yen soared after the Bank of Japan’s stimulus plans underwhelmed investors.
U.S. gross domestic product increased at a 1.2 percent annual rate, the Commerce Department said. Economists polled by Reuters had forecast GDP growth rising at a 2.6 percent rate in the April-June period.
"There were some aspects of the GDP report that were not nearly as weak as the headline, but the headline affirmed that the Fed could wait for a while,” said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York.
The dollar has fallen since the Federal Reserve's statement from its policy meeting on Wednesday disappointed some investors who had thought the U.S. central bank might signal that a rate increase was possible in September.
Improving economic data in recent weeks has led many economists and investors to bring forward rate expectations, after previously pricing out the likelihood of a hike this year. December is seen as the most likely month for an increase.
The dollar index .DXY, which tracks the greenback against a basket of six major rivals, dropped 1.22 percent to 96.566, the lowest level since July 5.
Weakness was likely exacerbated by investors unwinding popular trades entered into before this week that the greenback would continue to strengthen on a hawkish Fed and a highly stimulative Bank of Japan.
The yen soared after the BOJ disappointed investors who had expected bolder measures to stimulate growth and raise inflation in Japan’s ailing economy.
The yen 3.05 percent against the dollar to 102.04 yen, the highest level since July 11.
Japan's central bank doubled purchases of exchange-traded funds (ETFs) and said it will conduct a thorough assessment of the effects of negative interest rates and its massive asset-buying program in September, suggesting that a major overhaul of its stimulus program may be forthcoming.
"I think the market's going to be punting this back and forth as to whether this is really a disappointment or whether they are playing for time," said Steven Englander, global head of foreign exchange strategy at Citigroup in New York.
Next Friday’s U.S. employment report for July will be the next major indicator under scrutiny for clues on the strength of the U.S. economy.
So, guys, today we wil shift to Asia-Pacific region and will take a look at recent China stats and NZD dollar. Mostly because weak US GDP has erased our short-term bearish setup on EUR and we need some time when market will form something else. Long-term EUR view still stands the same, but we already have discussed it last week.
But on NZD we have very nice short-term setup...
News in Charts: China data confirm doubling down
by Fathom Consulting
China’s National Bureau of Statistics released its 2016 Q2 GDP growth estimate last week. At 6.7% in the four quarters to Q2, it sat comfortably within Beijing’s target range. On a quarterly basis, GDP grew by 1.8%. This was up from 1.2% in Q1, the slowest pace since figures were first published in 2011.
Last week, China’s National Bureau of Statistics released its preliminary estimate for second quarter GDP growth, beating most national statistical agencies by several weeks. Coming in at 6.7% in the four-quarters to 2016 Q2, it sat comfortably within Beijing’s target range of “between 6.5% and 7.0%” and was the same as that achieved in the first quarter. However, we remain skeptical about the accuracy of China’s GDP data. Not only are they published with surprising efficiency, the headline growth figure remains well above our own gauge of China’s economic activity — our China Momentum Indicator (CMI) — which suggests that growth is closer to 2.4%.
On a quarterly basis, China’s official GDP grew by 1.8%. This was up from 1.2% in Q1, the slowest pace since quarterly growth figures were first published at the beginning of 2011. Accordingly, both our CMI and official GDP data suggest that China’s dramatic slowdown bottomed out in the first quarter of this year. This is in line with our view that China’s policymakers are in the process of ‘doubling down’ on investment in a bid to kick-start the economy.
The monthly statistics released alongside last week’s GDP data reaffirm that view, pointing to China’s pursuit of short-term growth objectives at the expense of rebalancing. Indeed, indicators most closely linked to China’s tried-and-tested growth model, electricity production and bank lending growth, picked up last month. In addition, growth in fixed-asset investment by private enterprises fell to a record low in the first half of the year compared to the same six months a year ago. Meanwhile, the equivalent figure for state-owned enterprises rose by 23.5%.
Although unsustainable, this pick-up in economic activity has been received positively by Chinese investors and consumers alike. The National Bureau of Statistics’ Consumer Confidence Index rebounded to 102.9. A figure above 100 shows that consumers are becoming more optimistic. Meanwhile, the Shanghai stock index has gained around 6% since the UK voted to leave the European Union – suggesting that China worries have been superseded by Brexit.
Interestingly, the People’s Bank of China appears to have used the UK referendum result to allow the renminbi to fall to a five-and-a-half year low against the US dollar, avoiding the financial turmoil which followed the devaluation last August. In effective terms, the renminbi has declined steadily throughout the year. This is in line with the path that we set out three months ago in our Global Economic and Markets Outlook for 2016 Q2. Looking ahead, we expect the gradual depreciation of the renminbi to continue, alongside two or three interest rate cuts by the end of the year.
COT Report
As we've mentioned above - today we will take a look at NZD. To be honest, guys, we're mostly interested in short-term setup for 1-2 weeks at maximum. Probably even for 1 week, till NFP release. That's why we will take a look at COT data, but as our setup mostly is a short-term, we do not need it too much, I suppose.
It is interesting, that net speculative position on NZD stands around zero. It means that there are equal amount shorts and longs. Recent action mostly looks bearish, because as price was moving higher open interest was tending lower. It tells that upward action mostly was based on closing of some shorts.
In relation to long-term picture, this combination warns us against taking long-term long position on NZD. Situation could change on next week as we will get data after Fed and poor US GDP numbers. Also it is a question though, what NFP data we will get...
Confirmation of some kind of indecision on NZD also comes from Diary market. Thus, according to Rabobank research:
Global deliveries of milk have started to fall, while dairy markets are showing only modest demand growth. Despite upward movement in prices at the end of Q2 growing inventories will continue to overhang the market as the world works its way through the current glut, according to the Rabobank Global Dairy Quarterly Q2 2016:
"Global deliveries of milk have started to fall, while dairy markets are showing only modest demand growth. Despite upward movement in prices at the end of Q2 growing inventories will continue to overhang the market as the world works its way through the current glut, according to the Rabobank Global Dairy Quarterly Q2 2016.
In Q2, the world’s farmers started to react to protracted lower farmgate prices by slowing growth in production—as anticipated, production will start to fall in response to low farmgate prices, leading to sharp reductions in export surpluses. Despite higher buying from China in the first half of the year, poor economic performance, low oil prices and geopolitics continue to weaken demand in many regions. Global stocks continue to increase, with current stocks estimated to stand at 6.4m tonnes higher than the five-year average in liquid milk equivalent (LME) terms, representing around 7.5% of annual trade.
Rabobank continues to forecast that prices will start to increase in 1H 2017, but high levels of stock and weak global demand can threaten this. In addition the decision of Britain to leave the EU could skew global competition if as forecast the euro weakens increasing the competitiveness of European products in export markets.
“While we still forecast prices to rise in 2017, these risk being dampened by continuing weak demand due to low oil prices, trade bans and lack of affordability in emerging markets,” says Kevin Bellamy. “As a result, the light at the end of the tunnel remains undimmed.”
Technicals
In huge time scale perspective (this is probably not even monthly chart), we have big AB=CD pattern. NZD has turned to downward action in summer 2014 and has not reached it's target. It means that sometime it will turn to upside action again and could hit estimated 0.92 area.
Our discussion of this setup has started as soon as market has reached major 5/8 monthly Fib support @ monthly Oversold (not shown). Situation on NZD long-term picture is very contradictive. From one side we have thurst down and upside retracement from major Fib support, that takes the shape of bearish flag.
But, from the other one - NZD has moved above YPP, it has broken very strong weekly K-resistance and Agreement that happens very rare. It means that something probably stands beyond this action. Although we do not have real thrusting action here, but still action is up and trend is bullish on monthly chart.
We do not have any assistance from fundamental information as well. COT data as well as overall situation around NZD mostly tells that it is balanced and no one side has some advatage over its rival.
Taking it all together, it seems that NZD has some short-term upside momentum and currently we have no reasons for bearish view on NZD. Especially after our strong weekly resistance has been broken up...
Weekly
Here guys, the pattern that is attracted my attention. And in general overall recent price action. We have bullish stop grabber on weekly chart with 150+ pips upside potential. Here we use only minimal target - just the previous top. But, NFP could be bad, and this will be another nail in USD tomb together with Fed dovish comments and poor GDP. In this ultimate case, NZD could even reach our AB=CD 1.618 target...
Speaking on overall action, current dive down could be re-testing of previously broken our rock hard resistance area - weekly Confluence and Agreement with AB-CD target. Markets never break such levels without any respect just ocasionally. This happens only some really strong support power stands beyond the market. Almost "rule of thump" action is re-testing this strong area afer breakout. May be something of that sort we see now...
Thus our setup is based on pattern - bullish stop grabber on weekly chart and on overall price behavior.
Daily
So, let's take a look what we have on daily chart. Some really important issues... As around trend line as near upside reversal point there is a cluster of Fib levels stands. NZD barely has touched K-support and turned up.
Trend has turned bullish, MACD shows very strong angle of line crossing, and, guys, looks like we have bullish divergence with MACD right around daily K-support.
On a way up market has reached overbought area and we probably will need some pullback for joing the trade:
4-hour
On intraday charts we see more details. Thus, take a look how this uward action has started. Right at the bottom in blue circle NZD has shown shy W&R of the lows. Long tails suggest existence of good purchasing and real support. After that market has started move up.
This time frame points on 0.7125 area as most suitable for searching "Buy" signals. As we will get two new pivots - August and weekly, market will try to test it. As NZD is overbought, then retracement should not bee too small. Thus, K-support around pivots seems as good setup.
Hourly
NZD right now is a goldmine of patterns. Right now we've discussed weekly setup, but on the hourly chart we have two potential setups as well. They might be interesting to scalp traders.
First one is DiNapoli "Kibby trade" this is a kind of "Stretch" pattern. But Stretch is a combination of Fib level and OB/OS area. "Kibby" is a combination of AB-CD target and Overbought, but it suggests the same way of action as Stretch. Take a look that NZD has reached 1.618 AB-CD target on hourly chart and it stands at overbought on daily chart. According to DiNapoli framework, dealing with Kibby trader should wait when hourly trend by MACD (in our case this is hourly time frame) will shift bearish. Then you need to wait minor upside retracement to Fib level and take a scalp short position. Target will be AB-CD extension, based on first drop.
Second pattern is minor DRPO or B&B. I place Fib levels of this thrust. But as market stands at OB on daily - DRPO here is more logical. Thus, may be Kibby and DRPO will become a single trade, we will see...
But for us, major object is weekly bullish grabber and long entry opportunity...
Conclusion:
Currently it is difficult to estimate long-term view on NZD. Although recent action was bearish, but right now kiwi shows an action that is not typical for bearish market. It could mean that currency stands in some starting point of changing long-term situation.
At the same time, we are interested in particular setup on weekly chart, that is bullish grabber. Our trading plan suggests expecting a retracement in the beginning of the week and then watching for possible long entry.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
