Sive Morten
Special Consultant to the FPA
- Messages
- 18,648
Fundamentals
(Reuters) - The U.S. dollar hit a more than 2-1/2-year low against a basket of major rivals on Friday on reduced expectations for another Federal Reserve rate increase this year, while the euro hit multi-year highs in the wake of a European Central Bank meeting.
New York Fed President William Dudley, while saying in a speech Thursday that the central bank should continue gradually raising U.S. interest rates, sounded slightly less confident than in his previous hawkish comments.
The tone reduced demand for the dollar and helped knock the greenback to a roughly 10-month low against the yen to 107.33 yen. Concerns over the impending short-term impact of Hurricane Irma on the U.S. economy also weighed on the dollar, analysts said.
The dollar was last set to drop 2.2 percent against the yen for the week to mark its biggest weekly percentage decline in about 13 months.
“What everybody is trying to do is price out any potential Fed hike for the remainder of this year,” said Dean Popplewell, chief currency strategist at Oanda in Toronto.
The dollar index, which measures the greenback against a basket of six major rivals, hit its lowest level since January 2015 of 91.011 and was set for its biggest weekly decline since late June of 1.6 percent.
The euro rose as much as 0.6 percent to its highest since January 2015 of $1.2092. While the euro pared most of its gains, leaving it roughly flat against the dollar at $1.2027, it was on track for a weekly gain of 1.4 percent, putting it up more than 14 percent this year against the dollar.
ECB President Mario Draghi’s comments Thursday did little to deter euro bulls, and a Reuters report that central bank officials were in broad agreement that their next step would be to reduce their bond purchases also supported the currency.
The ECB “left the mystery out there” with regard to tapering, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York. “It creates a feeding frenzy, and the momentum that was there (in the euro) gets accelerated.”
The dollar was last up 0.2 percent against the offshore Chinese yuan at 6.4990 yuan, rebounding off a low of 6.4437 after sources said the country’s central bank plans to scrap reserve requirements for financial institutions settling foreign exchange forward yuan positions with effect from Monday.
RBA's Lowe Comfortable with Australian Dollar's Levels, but Warns Interest Rates to Stay Lower-for-Longer
RBA Governor Lowe offer a mixed-bag for the Aussie Dollar in an address delivered in Brisbane signalling comfort with current levels but warning Australian interest rates will stay lower-for-longer.
Reserve Bank of Australia Governor Philip Lowe has said Australia's future equilibrium rate of interest will be lower than in prior years thanks to a turn in the commodity super cycle.
At a dinner in Brisbane, Australia, just after the RBA announced its decision to leave the cash rate unchanged at 1.50% for the 13th month, Lowe told the audience that rate-setters have recently discussed the likely future equilibrium rate of interest for the Australian economy.
“The main conclusion from that discussion was that, in future, it was likely that the average level of the cash rate would be lower than it was before the financial crisis,” Lowe says, “this reflects slower trend growth in the economy and a shift in the balance between savings and investment.”
The RBA governor said that equilibrium rate is around 2% above the current cash rate, implying a view among policy makers that the future equilibrium rate is probably around 3.5%.
This is the rate at which the RBA believes its policy will be neither expansionary nor contractionary.
The Australian Dollar has been a multi-year outperformer on global foreign exchange markets thanks to Australia's superior interest rates relative to other major nations.
The high yield that results from these high rates has long attracted notable inflows of investor capital which in turn keeps the Aussie Dollar bid.
Suggestions that this interest rate superiority is ultimately to fade therefore ultimately removes a key pillar of strength for the currency.
The Australian Dollar was undeterred by Lowe’s comments, instead continuing the session's advance against the majors, as well as the remainder of the G10 basket thanks to the RBA's relatively upbeat assessment of the economy, delivered hours earlier.
Comfortable with Australian Dollar's Levels
Perhaps the Aussie Dollar was flat on Lowe's comments on interest rates owing to his acceptance of current valuations of the currency.
Lowe noted the Queensland region of Australia was showing signs of a tentative recovery in the wake of the mining investment boom having burst, but that it this could be hampered if the Australian Dollar were to strengthen further.
“The lower exchange rate is helping, particularly in the tourism, education and rural industries. An appreciating exchange rate would not be helpful from this perspective,” the governor says.
Some economists and strategists had pondered the RBA’s likely view of the Australian Dollar given its strong run in the year to date, which has been driven by a recovery of key commodity prices and the continued stability of the Chinese economy.
But the market’s interpretation of the RBA’s stance on the Aussie, in the immediate aftermath of Tuesday’s rate decision, suggested ambivalence on the part of policy makers.
“In comparison to the RBNZ which recently stepped up verbal intervention, the RBA does not appear as concerned by domestic currency strength,” wrote MUFG analyst Lee Hardman, in a morning note.
Lowe’s comments come at a formative time for Bank of England monetary policy, as well as for the UK economy.
The fall in the value of Sterling since the Brexit referendum has pushed up inflation, leading some policy makers and economists to begin calling for rate hikes, while the economy has shown signs of slowing in recent months - which makes tightening monetary policy difficult.
Pound Sterling Live reported on the latest volley of UK economic data Tuesday, which showed growth in the all-important services sector of the economy slowing during August.
This came after Monday’s news of a continued slowdown in the domestic construction industry, reported by Pound Sterling Live.
The only bright spot in recent UK economic data has been the monthly PMI survey of the manufacturing industry, which rose sharply in August, with robust domestic and international demand both playing a role.
COT Report
Today, guys, we will take a look at AUD, as among other major currencies (I mean, beyond EUR), it shows most clear setup. CFTC data shows bullish sentiment as in last 2 months as net speculative long position as open interest were rising. At the same time aussie is far from saturation level. Its high was fixed around 100K contracts, while right now net long position stands around 60K.
Thus, from this point of view, AUD has no barriers to move higher. As RBA has announces stable interest rates for considerable period of time, the only driving factor for AUD could be either weakness in USD or real improvement in statistics, rising of commodities etc.
So, it seems that right now it is more important for AUD such statistics as Trade Balance and export/Import prices. This is probably will be one of the major driving factors for AUD. Indeed, as dollar has limited potential for weakness right now - it stands at monthly 50% support and oversold:
RBA Lowe said that interest rate will be on hold for considerable time as inflation still stands weak, the only driving factor for AUD could be inner ones, as commodity export and it's prices. If overall commodities bullish trend will continue - then AUD will keep chances to proceed to higher levels, but in short-term perspective, within 1-2 months its upside potential looks limited and stands around 0.8150-0.82 area. At the same time, hardly we will get strong sell-off as well, as situation around AUD mostly looks positive by far.
Technical
Monthly
Last time we've talked on AUD in the beginning of August and situation on monthly chart has not changed significantly. Thus, the same AB-CD pattern stands in focus. Trend is bullish here. Right now market has limited upside potential around 100 pips and major action on monthly chart mostly is done. As we can see, 0.81-0.82 is very strong resistance that includes YPR1, major 3/8 Fib resistance, AB-CD target @ 0.8165.
It means that there are big chances that in 0.8150-0.8250 area we need to keep an eye on bearish reversal pattern on daily time frame. Still, market should try to show some upside continuation as major monthly target has not been reached yet for ~40 pips:
Weekly
Precisely four weeks ago when market has reached 1.27 extension and daily OB level, we've made an assumption that aussie should climb higher and reach 1.618 extension because monthly target is not completed and upside acceleration is too fast to stop AUD.
Now we see that this has happened. Now price is struggling with MPR1 and YPR1. There is no OB area any more. As major target has not been hit still - upside action should continue but it will be more volatile and heavy as market is sticking inside wide resistance area that rapidly exhausts upside momentum and it is fading.
So, by weekly chart, it seems that some kind of last upside effort should happen before major retracement will start here:
Daily
Here we're coming to chart that we have considered on Friday. Our bet on minor retracement was correct as price dropped slightly as it has completed 1.27 butterfly target and daily OB area. This combination leads us to suggestion that retracement should continue.
But not only existence of OB is a reason for that. Take a look that we've got shooting star at the top. This pattern by its nature is equal to bearish engulfing. If we could plot 12-hour chart, we could see it. Hence, the target of this pattern approximately equals to its length and usually takes the shape of some AB-CD pattern on intraday charts.
Finally, minimal reaction to butterfly's target is 3/8 retracement and it stands around 0.80 area. All these moments suggests that we could get downside continuation in the beginning of the next week.
Another concern here is how price will hit 0.8165 monthly target. What pattern will be formed here. Obviously, it should be existing butterfly's 1.618 target - just upside continuation to 0.8220 area. But, also we do not exclude chance to get 3-Drive "Sell" pattern. But to get it, price should drop almost back to 0.7850 area. Thus, keep an eye on retracement down. If it will become too fast and will break all supports, it could lead to appearing of 3-Drive, instead of this butterfly:
Intraday
But this is not all surprises yet. On Friday, we've said that there are two major targets of retracement could be. First one is re-testing of previous top around 0.8050, second, as we've said above - 0.80 area. Latter one looks more reasonable, but take a look what we have on 4-hour chart. This is bullish stop grabber has been formed right at 3/8 Fib support:
At the same time, on hourly chart our DRPO "Sell" has reached minimal target - 50% Fib support of the thrust and on 15-min chart butterfly "Buy" pattern has been formed:
Of course that hardly we will catch entry moment to join this setup, but it could lead either to minor upside bounce or, as maximum - to immediate upside continuation. In first case we will get of BC leg of future AB-CD downside action to 0.80. In second scenario - direct action to monthly target as market should climb above previous tops.
Currently, by technical analysis - just BC leg looks more reasonable, but who knows, may be some new inputs of geopolitical or fundamental kind will be released on Monday... In general, next week we will get Australia employment statistics and some data on consumption. Some news could come from US on hurricane harm and change statistics as it was last week on initial claims report that has made strong impact on markets...
Conclusion:
AUD has positive sentiment but in perspectives of 1-2 months it has limited upside potential, mostly because of absence of driving factors. USD weakness probably will take a pause, RBA policy right now mostly stands flat and only driving factors for AUD that we see are Trade Balance, Export volume and Import/Export prices. But within 1-2 months we will not get big update on this stats. That's why currently we see upside ceil around 0.8150-0.8250 area.
In shorter-term perspective, on coming week AUD should continue minor retracement down, but as we've said - some patterns have been formed that point on chances of immediate upside continuation.
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 U.S. dollar hit a more than 2-1/2-year low against a basket of major rivals on Friday on reduced expectations for another Federal Reserve rate increase this year, while the euro hit multi-year highs in the wake of a European Central Bank meeting.
New York Fed President William Dudley, while saying in a speech Thursday that the central bank should continue gradually raising U.S. interest rates, sounded slightly less confident than in his previous hawkish comments.
The tone reduced demand for the dollar and helped knock the greenback to a roughly 10-month low against the yen to 107.33 yen. Concerns over the impending short-term impact of Hurricane Irma on the U.S. economy also weighed on the dollar, analysts said.
The dollar was last set to drop 2.2 percent against the yen for the week to mark its biggest weekly percentage decline in about 13 months.
“What everybody is trying to do is price out any potential Fed hike for the remainder of this year,” said Dean Popplewell, chief currency strategist at Oanda in Toronto.
The dollar index, which measures the greenback against a basket of six major rivals, hit its lowest level since January 2015 of 91.011 and was set for its biggest weekly decline since late June of 1.6 percent.
The euro rose as much as 0.6 percent to its highest since January 2015 of $1.2092. While the euro pared most of its gains, leaving it roughly flat against the dollar at $1.2027, it was on track for a weekly gain of 1.4 percent, putting it up more than 14 percent this year against the dollar.
ECB President Mario Draghi’s comments Thursday did little to deter euro bulls, and a Reuters report that central bank officials were in broad agreement that their next step would be to reduce their bond purchases also supported the currency.
The ECB “left the mystery out there” with regard to tapering, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York. “It creates a feeding frenzy, and the momentum that was there (in the euro) gets accelerated.”
The dollar was last up 0.2 percent against the offshore Chinese yuan at 6.4990 yuan, rebounding off a low of 6.4437 after sources said the country’s central bank plans to scrap reserve requirements for financial institutions settling foreign exchange forward yuan positions with effect from Monday.
RBA's Lowe Comfortable with Australian Dollar's Levels, but Warns Interest Rates to Stay Lower-for-Longer
RBA Governor Lowe offer a mixed-bag for the Aussie Dollar in an address delivered in Brisbane signalling comfort with current levels but warning Australian interest rates will stay lower-for-longer.
Reserve Bank of Australia Governor Philip Lowe has said Australia's future equilibrium rate of interest will be lower than in prior years thanks to a turn in the commodity super cycle.
At a dinner in Brisbane, Australia, just after the RBA announced its decision to leave the cash rate unchanged at 1.50% for the 13th month, Lowe told the audience that rate-setters have recently discussed the likely future equilibrium rate of interest for the Australian economy.
“The main conclusion from that discussion was that, in future, it was likely that the average level of the cash rate would be lower than it was before the financial crisis,” Lowe says, “this reflects slower trend growth in the economy and a shift in the balance between savings and investment.”
The RBA governor said that equilibrium rate is around 2% above the current cash rate, implying a view among policy makers that the future equilibrium rate is probably around 3.5%.
This is the rate at which the RBA believes its policy will be neither expansionary nor contractionary.
The Australian Dollar has been a multi-year outperformer on global foreign exchange markets thanks to Australia's superior interest rates relative to other major nations.
The high yield that results from these high rates has long attracted notable inflows of investor capital which in turn keeps the Aussie Dollar bid.
Suggestions that this interest rate superiority is ultimately to fade therefore ultimately removes a key pillar of strength for the currency.
The Australian Dollar was undeterred by Lowe’s comments, instead continuing the session's advance against the majors, as well as the remainder of the G10 basket thanks to the RBA's relatively upbeat assessment of the economy, delivered hours earlier.
Comfortable with Australian Dollar's Levels
Perhaps the Aussie Dollar was flat on Lowe's comments on interest rates owing to his acceptance of current valuations of the currency.
Lowe noted the Queensland region of Australia was showing signs of a tentative recovery in the wake of the mining investment boom having burst, but that it this could be hampered if the Australian Dollar were to strengthen further.
“The lower exchange rate is helping, particularly in the tourism, education and rural industries. An appreciating exchange rate would not be helpful from this perspective,” the governor says.
Some economists and strategists had pondered the RBA’s likely view of the Australian Dollar given its strong run in the year to date, which has been driven by a recovery of key commodity prices and the continued stability of the Chinese economy.
But the market’s interpretation of the RBA’s stance on the Aussie, in the immediate aftermath of Tuesday’s rate decision, suggested ambivalence on the part of policy makers.
“In comparison to the RBNZ which recently stepped up verbal intervention, the RBA does not appear as concerned by domestic currency strength,” wrote MUFG analyst Lee Hardman, in a morning note.
Lowe’s comments come at a formative time for Bank of England monetary policy, as well as for the UK economy.
The fall in the value of Sterling since the Brexit referendum has pushed up inflation, leading some policy makers and economists to begin calling for rate hikes, while the economy has shown signs of slowing in recent months - which makes tightening monetary policy difficult.
Pound Sterling Live reported on the latest volley of UK economic data Tuesday, which showed growth in the all-important services sector of the economy slowing during August.
This came after Monday’s news of a continued slowdown in the domestic construction industry, reported by Pound Sterling Live.
The only bright spot in recent UK economic data has been the monthly PMI survey of the manufacturing industry, which rose sharply in August, with robust domestic and international demand both playing a role.
COT Report
Today, guys, we will take a look at AUD, as among other major currencies (I mean, beyond EUR), it shows most clear setup. CFTC data shows bullish sentiment as in last 2 months as net speculative long position as open interest were rising. At the same time aussie is far from saturation level. Its high was fixed around 100K contracts, while right now net long position stands around 60K.
Thus, from this point of view, AUD has no barriers to move higher. As RBA has announces stable interest rates for considerable period of time, the only driving factor for AUD could be either weakness in USD or real improvement in statistics, rising of commodities etc.
So, it seems that right now it is more important for AUD such statistics as Trade Balance and export/Import prices. This is probably will be one of the major driving factors for AUD. Indeed, as dollar has limited potential for weakness right now - it stands at monthly 50% support and oversold:
RBA Lowe said that interest rate will be on hold for considerable time as inflation still stands weak, the only driving factor for AUD could be inner ones, as commodity export and it's prices. If overall commodities bullish trend will continue - then AUD will keep chances to proceed to higher levels, but in short-term perspective, within 1-2 months its upside potential looks limited and stands around 0.8150-0.82 area. At the same time, hardly we will get strong sell-off as well, as situation around AUD mostly looks positive by far.
Technical
Monthly
Last time we've talked on AUD in the beginning of August and situation on monthly chart has not changed significantly. Thus, the same AB-CD pattern stands in focus. Trend is bullish here. Right now market has limited upside potential around 100 pips and major action on monthly chart mostly is done. As we can see, 0.81-0.82 is very strong resistance that includes YPR1, major 3/8 Fib resistance, AB-CD target @ 0.8165.
It means that there are big chances that in 0.8150-0.8250 area we need to keep an eye on bearish reversal pattern on daily time frame. Still, market should try to show some upside continuation as major monthly target has not been reached yet for ~40 pips:
Weekly
Precisely four weeks ago when market has reached 1.27 extension and daily OB level, we've made an assumption that aussie should climb higher and reach 1.618 extension because monthly target is not completed and upside acceleration is too fast to stop AUD.
Now we see that this has happened. Now price is struggling with MPR1 and YPR1. There is no OB area any more. As major target has not been hit still - upside action should continue but it will be more volatile and heavy as market is sticking inside wide resistance area that rapidly exhausts upside momentum and it is fading.
So, by weekly chart, it seems that some kind of last upside effort should happen before major retracement will start here:
Daily
Here we're coming to chart that we have considered on Friday. Our bet on minor retracement was correct as price dropped slightly as it has completed 1.27 butterfly target and daily OB area. This combination leads us to suggestion that retracement should continue.
But not only existence of OB is a reason for that. Take a look that we've got shooting star at the top. This pattern by its nature is equal to bearish engulfing. If we could plot 12-hour chart, we could see it. Hence, the target of this pattern approximately equals to its length and usually takes the shape of some AB-CD pattern on intraday charts.
Finally, minimal reaction to butterfly's target is 3/8 retracement and it stands around 0.80 area. All these moments suggests that we could get downside continuation in the beginning of the next week.
Another concern here is how price will hit 0.8165 monthly target. What pattern will be formed here. Obviously, it should be existing butterfly's 1.618 target - just upside continuation to 0.8220 area. But, also we do not exclude chance to get 3-Drive "Sell" pattern. But to get it, price should drop almost back to 0.7850 area. Thus, keep an eye on retracement down. If it will become too fast and will break all supports, it could lead to appearing of 3-Drive, instead of this butterfly:
Intraday
But this is not all surprises yet. On Friday, we've said that there are two major targets of retracement could be. First one is re-testing of previous top around 0.8050, second, as we've said above - 0.80 area. Latter one looks more reasonable, but take a look what we have on 4-hour chart. This is bullish stop grabber has been formed right at 3/8 Fib support:
At the same time, on hourly chart our DRPO "Sell" has reached minimal target - 50% Fib support of the thrust and on 15-min chart butterfly "Buy" pattern has been formed:
Of course that hardly we will catch entry moment to join this setup, but it could lead either to minor upside bounce or, as maximum - to immediate upside continuation. In first case we will get of BC leg of future AB-CD downside action to 0.80. In second scenario - direct action to monthly target as market should climb above previous tops.
Currently, by technical analysis - just BC leg looks more reasonable, but who knows, may be some new inputs of geopolitical or fundamental kind will be released on Monday... In general, next week we will get Australia employment statistics and some data on consumption. Some news could come from US on hurricane harm and change statistics as it was last week on initial claims report that has made strong impact on markets...
Conclusion:
AUD has positive sentiment but in perspectives of 1-2 months it has limited upside potential, mostly because of absence of driving factors. USD weakness probably will take a pause, RBA policy right now mostly stands flat and only driving factors for AUD that we see are Trade Balance, Export volume and Import/Export prices. But within 1-2 months we will not get big update on this stats. That's why currently we see upside ceil around 0.8150-0.8250 area.
In shorter-term perspective, on coming week AUD should continue minor retracement down, but as we've said - some patterns have been formed that point on chances of immediate upside continuation.
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.
