Sive Morten
Special Consultant to the FPA
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- 18,673
Fundamentals
(Reuters) The dollar climbed to a two-week peak against a basket of currencies on Friday, as stronger-than-expected U.S. economic data appeared to boost expectations the Federal Reserve may raise interest rates more than once this year.
The move was the best two-week gain for the dollar since late February. The greenback also rose to a two week-high against the euro and Swiss franc.
Data on Friday showed U.S. retail sales gained 1.3 percent in April, the largest rise in more than a year, suggesting the economy was regaining momentum after growth almost stalled in the first quarter.
Excluding automobiles, gasoline, building materials and food services, retail sales shot up 0.9 percent last month after an upwardly revised 0.2 percent gain in March.
The retail sales report "is likely to rekindle arguments from the hawkish camp in the ongoing debate among policy makers about why the Federal Reserve should consider maintaining its rate normalization efforts," said Samarjit Shankar, head of iFlow and quant strategies at BNY Mellon in Boston. The dollar, he added, is likely to continue garnering support from the market's interest rate expectations.
The U.S. currency remained net bought over the past week, although on a more modest basis, according to BNY Mellon data.
The greenback suffered a sharp sell-off in the first four months of 2016, hitting a 16-month low, as market expectations of at least two Fed rate hikes this year faded amid fears about a global economic slowdown and financial market turbulence.
With those concerns having subsided somewhat, some analysts say there are signs the tide could be turning for the dollar and that investors, who now see about a 60 percent chance of a Fed hike this year, may have pushed back their expectations too far.
In late trading, the dollar index rose 0.5 percent to 94.609, its largest one-day gain in more than a week. The index also got a boost after the University of Michigan's consumer sentiment index rose to 95.8 this month, the highest level since June 2015, from April's reading of 89.
The euro meanwhile fell to $1.1304, down 0.6 percent . The euro shrugged off data showing euro zone GDP grew by 0.5 percent in the first quarter, in a downward revision of an earlier estimate.
Against the yen, the dollar fell 0.4 percent to 108.60 yen, clear of an 18-month low of 105.55 hit last week after the Bank of Japan kept monetary policy unchanged.
Big investement banks have updated their view on perspectives of USD value to EUR and other currencies.
Goldman Sachs, one of the most bearish investment banks on the outlook for the euro, ditched its call on Friday for the single currency to fall below $1.00 next year, predicting it will now trough at $1.05.
The bank recently lowered its outlook for U.S. interest rates and Treasury bond yields, which implies a slower rate of appreciation in the dollar in the coming months.
Deutsche Bank, another of the most aggressive euro bears in the investment banking community, has also raised its euro forecasts, although it still expects the euro to fall below parity with the dollar in 2017.
"We delay some of our expectation for euro downside well into next year, given mixed messages from the European Central Bank," Goldman's currency strategy team led by Robin Brooks said in a note on Friday.
"Overall, our view remains that the dollar will rise a further 13 percent, but that appreciation is tilted against the yen near term and more back-loaded elsewhere," they said.
Brooks and his team now see the euro falling as low as $1.05 next year compared with their previous forecast of $0.95. They still expect $0.90 will be reached over the next three years.
Shorter-term, they now see the euro at $1.12 in three months and $1.10 in six months, compared with their previous calls for $1.04 and $1.00, respectively.
They also lowered their dollar/yen forecasts to 115 yen in three months, 120 yen in six months and 125 yen in 12 months, from 122 yen, 125 yen and 130 yen previously.
"Ultimately, we have more faith that the Bank of Japan will find ways to surprise on the dovish side, given that reflation is at the core of Abenomics. As a result, we continue to forecast substantial dollar/yen upside," they wrote.
Both the ECB and BOJ are pumping large amounts of stimulus into the financial system via their respective bond purchase programs. Yet the euro and yen have appreciated substantially against the dollar this year, the euro by 4 percent and the yen by almost 10 percent.
In recent days Goldman lowered its U.S. 10-year yield forecast to 2.40 percent this year from 2.75 percent, and to 2.75 percent next year from 3.30 percent. On Friday it was trading around 1.74 percent.
Last week Goldman's economists cut their expectation for cumulative U.S. rate hikes over the next 18 months by 50 basis points.
Today, guys, we will take a look at NZD currency. It is not very popular and it is not a regular guest on our forum, but we haven't taken a look at it for some time already and we need some time to get clarity on recent drop of our primary currencies - EUR, GBP...
Australian dollar set to rise?
by Fathom Consulting
Last year, we argued that Australia had several aces up its sleeve helping it to avoid recession despite the downturn in its largest trading partner — China. We were right. Now, China appears to be throwing in the towel on rebalancing and doubling down in a bid to kick-start growth.
Last week, after keeping policy on hold for a year, the Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points to an all-time low of 1.75%. That decision came less than a week after data revealed that consumer prices had fallen by 0.2% in the first quarter of 2016, marking the first quarterly decline since 2008.
In the statement released alongside the Bank’s interest rate cut, Governor Glenn Stevens observed that “commodity prices have firmed noticeably from recent lows.” In our view, that turnaround over the past month or two is consistent with some recovery in economic activity in China as it reverts to its old growth model of credit-fuelled investment.
Closely correlated with industrial commodities prices, the Australian dollar has also strengthened since its recent trough in January — up 3.9% on a trade-weighted basis at the time of writing. Although this complicates Australia’s transition from its mining investment boom to broader-based growth, we believe that the RBA should refrain from further interest rate cuts. Whether it will or not is finely balanced.
Nevertheless, we would recommend going long the Australian dollar against the New Zealand dollar. That is because the former is likely to experience greater upward pressure as China reverts to its old growth model. In other words, the prices of Australia’s metal-based commodities are likely to rise faster than New Zealand’s agricultural exports as China reverts to its old ways, with growth driven by investment rather than consumption.
Our chart uses the copper to milk price ratio as a timely proxy for this, with copper and milk some of the most important exports for Australia and New Zealand, respectively. As our chart highlights, the copper to milk price ratio has been on an upward trajectory since January, offering further evidence of a doubling down in China that is likely to support the Australian dollar.
CFTC Report
COT data shows very interesting picture. Open interest has increased significantly, while net-long position has not changed. It means that speculators have added aproximately equal amount of short and long positions. If will take a look at Long Format, then you'll see that Intermediary dealers mostly have added longs while Asset Managers and Institutional investors - shorts. But both of them are stand in speculative part of investors. This is very rare situation for analysis.
Here is the CFTC chart:
Currently we have an unique situation, that gives us very important tool for trading. Huge jump in trading volume tells that market mostly indecision and further direction will depend on short-term action. Thus, if market will drop below current lows - massive closing of longs probably should happen and NZD will drop, while minor upward action will lead to opposite action.
Technicals
Monthly
So, today we will take a look again at NZD that has long-term interesting setup.
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). Logical bounce up mostly has done. The speed of this action suggests that we do not have any new bulltrend but mostly are dealing with just technical retracement and respect of strong monthly chart. May be later situtation could change to something promising to NZD, but currently we do not see any signs of it. Besides, overall fundamental situation around NZD has not real advantages to USD.
Last two months Kiwi has reached strong resistance area. Although this is not overbought, but still it is a Yearly Pivot and major 3/8 monthly resistance. Somewhere around we would like to switch from bulilsh to bearish trading. The precise point and time for short entry we will have to estimate on lower time frames.
The most important issue, of course, is testing of YPP, especially failure to break it up. It means that by pivot framework NZD should drop to YPS1, which matches to former lows around 0.60. Currently it is difficult to imagine what reasons could help NZD to break through 0.7150 and to estimate long-term bullish sentiment by moving above YPP.
That's being said, we probably will watch for bearish reversal patterns and try to take medium-term short position.
Weekly
This is the most important picture that shows all our trading context for few weeks ahead. Here we should undertsand one thing. Right now we try to find out one important detail - wether market will show slightly higher first and then will drop, or, it will drop immediately. As you can see - here is most important word is "drop", that should happen anyway. That's why for long-term perspective it is not as important - in one way or another market should turn to downward action.
Still for short-term perspective this question is very important. Because it determines the level where we will search chance to go short and there will be quite different tactics if, say, market will move up a bit more, or if it will turn down right now...
Weekly chart shows that we have not just YPP and Fib level, but also weekly K-resistance and Agreement. Right now market stands in upside AB=CD action and "D" point has not been reached for few pips. Last week market has formed bullish grabber that suggests final leg up and washing of the tops. Theoretically this should let kiwi to complete AB=CD pattern and finalize bearish setup.
And here is the time to go back to CFTC data. Inside this week huge amount of opposite positions were opened. We again should recall "churning" term. If grabber will fail - then market could accelerate down withought completing of AB=CD pattern, while starting upside action should lead to gradual closing of shorts that will make grabber work. Thus coming 2-3 weeks will be very interesting
Daily
Currently NZD forms very bright and simple setup at the same time. All bullish hopes are based on one pattern. This pattern is morning star on daily chart. In fact weekly grabber and this "Star" are the same and have the same invalidation point - the lows.
Here we have another bullish setup that calls DiNapoli "Stretch" pattern. This is combination of Oversold and Fib support. Current action looks logical - as soon as pattern has been formed, I mean candlestick, kiwi has shown retracement back inside its body.
Right now market stands at the point where it has to turn up, if it is bullish. For us it means that if you want to take long position based on grabber and last upside leg to 0.7150 you have to do it somewhere around. When market will move out of this point - it either will destroy bullish setup totally by dropping below lows, or turn down and you will not get chances for another entry.
Hourly
Here we see that market has shown 5/8 retracement back inside the body of the pattern. Still it was able to hold above the lows even on a background of good US data that was released on Friday. Till 0.67 lows kiwi has no other support. Thus, if it will break through this level - nothing will be able to hold it, and mostly bullish setup will be doomed. That's why this level is important for decision making on long entry.
Still, our major interest stands around short entry but not in trading of last leg up. We're interested with it only because it could give us better entry price.
Conclusion:
Long-term view on NZD currently looks bearish. As technical patterns as fundamental situation shows nothing that could support Kiwi right now or turn it up. Thus, we mostly will be looking for change to sell a rally and get bearish position. Currently we hope for getting chance to sell around 0.7150.
On coming 1-2 weeks we will watch how particularly market will turn down - either after "final" leg up, or immediately. Thus, on Monday we have to keep an eye on perspectives of weekly bullish stop grabber.
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 climbed to a two-week peak against a basket of currencies on Friday, as stronger-than-expected U.S. economic data appeared to boost expectations the Federal Reserve may raise interest rates more than once this year.
The move was the best two-week gain for the dollar since late February. The greenback also rose to a two week-high against the euro and Swiss franc.
Data on Friday showed U.S. retail sales gained 1.3 percent in April, the largest rise in more than a year, suggesting the economy was regaining momentum after growth almost stalled in the first quarter.
Excluding automobiles, gasoline, building materials and food services, retail sales shot up 0.9 percent last month after an upwardly revised 0.2 percent gain in March.
The retail sales report "is likely to rekindle arguments from the hawkish camp in the ongoing debate among policy makers about why the Federal Reserve should consider maintaining its rate normalization efforts," said Samarjit Shankar, head of iFlow and quant strategies at BNY Mellon in Boston. The dollar, he added, is likely to continue garnering support from the market's interest rate expectations.
The U.S. currency remained net bought over the past week, although on a more modest basis, according to BNY Mellon data.
The greenback suffered a sharp sell-off in the first four months of 2016, hitting a 16-month low, as market expectations of at least two Fed rate hikes this year faded amid fears about a global economic slowdown and financial market turbulence.
With those concerns having subsided somewhat, some analysts say there are signs the tide could be turning for the dollar and that investors, who now see about a 60 percent chance of a Fed hike this year, may have pushed back their expectations too far.
In late trading, the dollar index rose 0.5 percent to 94.609, its largest one-day gain in more than a week. The index also got a boost after the University of Michigan's consumer sentiment index rose to 95.8 this month, the highest level since June 2015, from April's reading of 89.
The euro meanwhile fell to $1.1304, down 0.6 percent . The euro shrugged off data showing euro zone GDP grew by 0.5 percent in the first quarter, in a downward revision of an earlier estimate.
Against the yen, the dollar fell 0.4 percent to 108.60 yen, clear of an 18-month low of 105.55 hit last week after the Bank of Japan kept monetary policy unchanged.
Big investement banks have updated their view on perspectives of USD value to EUR and other currencies.
Goldman Sachs, one of the most bearish investment banks on the outlook for the euro, ditched its call on Friday for the single currency to fall below $1.00 next year, predicting it will now trough at $1.05.
The bank recently lowered its outlook for U.S. interest rates and Treasury bond yields, which implies a slower rate of appreciation in the dollar in the coming months.
Deutsche Bank, another of the most aggressive euro bears in the investment banking community, has also raised its euro forecasts, although it still expects the euro to fall below parity with the dollar in 2017.
"We delay some of our expectation for euro downside well into next year, given mixed messages from the European Central Bank," Goldman's currency strategy team led by Robin Brooks said in a note on Friday.
"Overall, our view remains that the dollar will rise a further 13 percent, but that appreciation is tilted against the yen near term and more back-loaded elsewhere," they said.
Brooks and his team now see the euro falling as low as $1.05 next year compared with their previous forecast of $0.95. They still expect $0.90 will be reached over the next three years.
Shorter-term, they now see the euro at $1.12 in three months and $1.10 in six months, compared with their previous calls for $1.04 and $1.00, respectively.
They also lowered their dollar/yen forecasts to 115 yen in three months, 120 yen in six months and 125 yen in 12 months, from 122 yen, 125 yen and 130 yen previously.
"Ultimately, we have more faith that the Bank of Japan will find ways to surprise on the dovish side, given that reflation is at the core of Abenomics. As a result, we continue to forecast substantial dollar/yen upside," they wrote.
Both the ECB and BOJ are pumping large amounts of stimulus into the financial system via their respective bond purchase programs. Yet the euro and yen have appreciated substantially against the dollar this year, the euro by 4 percent and the yen by almost 10 percent.
In recent days Goldman lowered its U.S. 10-year yield forecast to 2.40 percent this year from 2.75 percent, and to 2.75 percent next year from 3.30 percent. On Friday it was trading around 1.74 percent.
Last week Goldman's economists cut their expectation for cumulative U.S. rate hikes over the next 18 months by 50 basis points.
Today, guys, we will take a look at NZD currency. It is not very popular and it is not a regular guest on our forum, but we haven't taken a look at it for some time already and we need some time to get clarity on recent drop of our primary currencies - EUR, GBP...
Australian dollar set to rise?
by Fathom Consulting
Last year, we argued that Australia had several aces up its sleeve helping it to avoid recession despite the downturn in its largest trading partner — China. We were right. Now, China appears to be throwing in the towel on rebalancing and doubling down in a bid to kick-start growth.
Last week, after keeping policy on hold for a year, the Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points to an all-time low of 1.75%. That decision came less than a week after data revealed that consumer prices had fallen by 0.2% in the first quarter of 2016, marking the first quarterly decline since 2008.
In the statement released alongside the Bank’s interest rate cut, Governor Glenn Stevens observed that “commodity prices have firmed noticeably from recent lows.” In our view, that turnaround over the past month or two is consistent with some recovery in economic activity in China as it reverts to its old growth model of credit-fuelled investment.
Closely correlated with industrial commodities prices, the Australian dollar has also strengthened since its recent trough in January — up 3.9% on a trade-weighted basis at the time of writing. Although this complicates Australia’s transition from its mining investment boom to broader-based growth, we believe that the RBA should refrain from further interest rate cuts. Whether it will or not is finely balanced.
Nevertheless, we would recommend going long the Australian dollar against the New Zealand dollar. That is because the former is likely to experience greater upward pressure as China reverts to its old growth model. In other words, the prices of Australia’s metal-based commodities are likely to rise faster than New Zealand’s agricultural exports as China reverts to its old ways, with growth driven by investment rather than consumption.
Our chart uses the copper to milk price ratio as a timely proxy for this, with copper and milk some of the most important exports for Australia and New Zealand, respectively. As our chart highlights, the copper to milk price ratio has been on an upward trajectory since January, offering further evidence of a doubling down in China that is likely to support the Australian dollar.
CFTC Report
COT data shows very interesting picture. Open interest has increased significantly, while net-long position has not changed. It means that speculators have added aproximately equal amount of short and long positions. If will take a look at Long Format, then you'll see that Intermediary dealers mostly have added longs while Asset Managers and Institutional investors - shorts. But both of them are stand in speculative part of investors. This is very rare situation for analysis.
Here is the CFTC chart:
Currently we have an unique situation, that gives us very important tool for trading. Huge jump in trading volume tells that market mostly indecision and further direction will depend on short-term action. Thus, if market will drop below current lows - massive closing of longs probably should happen and NZD will drop, while minor upward action will lead to opposite action.
Technicals
Monthly
So, today we will take a look again at NZD that has long-term interesting setup.
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). Logical bounce up mostly has done. The speed of this action suggests that we do not have any new bulltrend but mostly are dealing with just technical retracement and respect of strong monthly chart. May be later situtation could change to something promising to NZD, but currently we do not see any signs of it. Besides, overall fundamental situation around NZD has not real advantages to USD.
Last two months Kiwi has reached strong resistance area. Although this is not overbought, but still it is a Yearly Pivot and major 3/8 monthly resistance. Somewhere around we would like to switch from bulilsh to bearish trading. The precise point and time for short entry we will have to estimate on lower time frames.
The most important issue, of course, is testing of YPP, especially failure to break it up. It means that by pivot framework NZD should drop to YPS1, which matches to former lows around 0.60. Currently it is difficult to imagine what reasons could help NZD to break through 0.7150 and to estimate long-term bullish sentiment by moving above YPP.
That's being said, we probably will watch for bearish reversal patterns and try to take medium-term short position.
Weekly
This is the most important picture that shows all our trading context for few weeks ahead. Here we should undertsand one thing. Right now we try to find out one important detail - wether market will show slightly higher first and then will drop, or, it will drop immediately. As you can see - here is most important word is "drop", that should happen anyway. That's why for long-term perspective it is not as important - in one way or another market should turn to downward action.
Still for short-term perspective this question is very important. Because it determines the level where we will search chance to go short and there will be quite different tactics if, say, market will move up a bit more, or if it will turn down right now...
Weekly chart shows that we have not just YPP and Fib level, but also weekly K-resistance and Agreement. Right now market stands in upside AB=CD action and "D" point has not been reached for few pips. Last week market has formed bullish grabber that suggests final leg up and washing of the tops. Theoretically this should let kiwi to complete AB=CD pattern and finalize bearish setup.
And here is the time to go back to CFTC data. Inside this week huge amount of opposite positions were opened. We again should recall "churning" term. If grabber will fail - then market could accelerate down withought completing of AB=CD pattern, while starting upside action should lead to gradual closing of shorts that will make grabber work. Thus coming 2-3 weeks will be very interesting
Daily
Currently NZD forms very bright and simple setup at the same time. All bullish hopes are based on one pattern. This pattern is morning star on daily chart. In fact weekly grabber and this "Star" are the same and have the same invalidation point - the lows.
Here we have another bullish setup that calls DiNapoli "Stretch" pattern. This is combination of Oversold and Fib support. Current action looks logical - as soon as pattern has been formed, I mean candlestick, kiwi has shown retracement back inside its body.
Right now market stands at the point where it has to turn up, if it is bullish. For us it means that if you want to take long position based on grabber and last upside leg to 0.7150 you have to do it somewhere around. When market will move out of this point - it either will destroy bullish setup totally by dropping below lows, or turn down and you will not get chances for another entry.
Hourly
Here we see that market has shown 5/8 retracement back inside the body of the pattern. Still it was able to hold above the lows even on a background of good US data that was released on Friday. Till 0.67 lows kiwi has no other support. Thus, if it will break through this level - nothing will be able to hold it, and mostly bullish setup will be doomed. That's why this level is important for decision making on long entry.
Still, our major interest stands around short entry but not in trading of last leg up. We're interested with it only because it could give us better entry price.
Conclusion:
Long-term view on NZD currently looks bearish. As technical patterns as fundamental situation shows nothing that could support Kiwi right now or turn it up. Thus, we mostly will be looking for change to sell a rally and get bearish position. Currently we hope for getting chance to sell around 0.7150.
On coming 1-2 weeks we will watch how particularly market will turn down - either after "final" leg up, or immediately. Thus, on Monday we have to keep an eye on perspectives of weekly bullish stop grabber.
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.