Sive Morten
Special Consultant to the FPA
- Messages
- 18,559
Fundamentals
This week we've got few events of fundamental content, but all of them brought mixed results. First, we've got GDP release. Despite that major number was better than expected (1.9% vs. 1.6%) - additional ratios have shown weaker meanings.
As Reuters reports - Gross domestic product increased at a 1.9% annualized rate in the third quarter, as declining business investment was offset by resilient consumer spending and a rebound in exports, the government said in its advance estimate of GDP.
The data “pointed to below trend growth, but still relatively steady and pretty solid growth in the context of
what’s going on in the rest of the world,” said Erik Nelson, a currency strategist at Wells Fargo in New York.
Other data showed that U.S. private employers added 125,000 jobs in October, slightly above economists' expectations.
It is good that we've got 1.9% GDP in III Q, but at the same time we've got slowdown in Sales from 3% in IIQ to 2%, PCE Prices also has dropped to 1.5% from 2.4%, and real consumer spending also decreased 1.5 times. These indicators that we've mentioned are not primary and attract less investors' attention, but they show real background, splitting GDP indicator into parts. And they show that US economy is slowing and can't holds the pace that was in the beginning of the year, despite all Fed efforts to act in advance.
Next day the dollar fell to a 10-day low against a basket of major currencies as investors evaluated whether the Federal Reserve would continue to cut rates, and after European data beat expectations.
The Fed on Wednesday lowered its policy rate by a quarter of a percentage point to a target range of 1.50% to 1.75%.
It also dropped a previous reference in its policy statement that it would “act as appropriate” to sustain the economic expansion - language that was considered a sign of future rate cuts.
Market participants remain concerned about a slowdown in the U.S. economy as the trade war between the United States and China continues, however, which could force the Fed’s hand.
“The new, slightly shorter, statement tries to keep their options open and puts them back into a data-dependent mode, but circumstances could mean that they have less optionality than they think,” said Tim Foster, portfolio manager at Fidelity International in London.
Speculators have been cutting their long dollar bets as the U.S. currency holds near historically high levels. Any improvement in global data may weigh on the dollar as investors bet on improving growth in Europe and other regions.
There is a view “that the dollar is expensive and as the global economy might be able to rebound next year, then the bias is to sell the dollar,” said Vassili Serebriakov, an FX strategist at UBS in New York.
Data released on Thursday showed euro zone economic growth was unchanged in the third quarter, beating market expectations that it would slow.
In the United States, consumer spending rose in September while wages were unchanged, which could cast doubt on whether consumers would continue to drive the economy.
The dollar dropped on Friday after data showed a mixed view on the economy, and as optimism that the United States and China will reach a deal to end their trade war reduced safe-haven demand for the greenback.
The dollar initially gained after U.S. jobs growth slowed less than expected in October, while wages gained and hiring in the prior two months was stronger than previously estimated.
“The data is much better than expected. Markets were braced, certainly in headline terms, for some much weaker numbers given the expected impact from the GM strike and the census hiring. So very good data in that context,” said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto.
Striking workers who do not receive a paycheck during the payrolls survey period are treated as unemployed. The strike by about 46,000 workers at GM plants in Michigan and Kentucky ended last Friday.
Temporary census workers also left their jobs during the month.
The U.S. currency was unable to hold onto the gains, however, and was further dented after the Institute for Supply Management (ISM) said the manufacturing sector contracted for the third consecutive month in October.
Concerns about a slowing American economy is weighing on the greenback, however, with the U.S. central bank expected to resume rate cuts if the economic data worsens.
“There is a bit more vulnerability starting to feed into the dollar, with perhaps the U.S. economy slowing down,” Osborne said.
Fed Vice Chair Richard Clarida said on Friday that the rate cuts put into effect leave the U.S. economy better armed to withstand the risks of a global slowdown.
Safe-haven flows into the U.S. currency have also weakened on optimism that the United States and China are close to reaching a deal to end their trade war, which has been blamed for slowing global growth.
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin made progress on a variety of issues during a telephone call on Friday with China’s Vice Premier Liu He about an interim trade agreement, USTR said in a statement on Friday.
The euro held its gains against the dollar on Friday as investors sold the U.S. currency, expecting the United States will soon join the global economic slowdown.
The dollar and the Japanese yen, both seen as safe-haven investments, appreciated equally each time the United States looked deadlocked in its trade dispute with China.
But the dollar is losing that status, after poor U.S. economic data. Investors do not share the Federal Reserve’s confidence in the economic outlook because of the risks posed by the trade war, which contributed to declines by the dollar and U.S. Treasury yields.
Therefore, “momentum is there for further short-term gains if we see a downside surprise” in U.S. non-farm payrolls on Friday, said MUFG analysts in a note to clients.
“Fed Chair (Jerome) Powell justified much of his optimism this week on a strong jobs market and continued strong consumer spending ...(so) risks are building of a sharper slowdown that would seriously question current market pricing of just one rate cut over the coming twelve months,” the analysts said.
Money markets are pricing in a 25-basis-point cut by June 2020, Refinitiv data showed.
“Following the Fed rate meeting, the market not only feels confirmed in its rate cut expectations, it has even raised them,” Commerzbank analysts said in a note to clients, citing the reports of Chinese doubts about a trade deal.
“The ISM index and the U.S. labour market report today will be decisive for whether the economic pessimism about the U.S. and thus the rate cut expectations as well as dollar weakness will continue short term,” the analysts said.
Data showed a mixed view on the economy, and as optimism that the United States and China will reach a deal to end their trade war reduced safe-haven demand for the greenback.
The dollar initially gained after U.S. jobs growth slowed less than expected in October, while wages gained and hiring in the prior two months was stronger than previously estimated.
“The data is much better than expected. Markets were braced, certainly in headline terms, for some much weaker numbers given the expected impact from the GM strike and the census hiring. So very good data in that context,” said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto.
The U.S. currency was unable to hold onto the gains, however, and was further dented after the Institute for Supply Management (ISM) said the manufacturing sector contracted for the third consecutive month in October.
The dollar has weakened since the Federal Reserve on Wednesday cut interest rates for the third time this year, and indicated that further reductions may not be forthcoming.
Concerns about a slowing American economy is weighing on the greenback, however, with the U.S. central bank expected to resume rate cuts if the economic data worsens.
“There is a bit more vulnerability starting to feed into the dollar, with perhaps the U.S. economy slowing down,” Osborne said.
Among other events we could mention long lasting opera on D. Trump impeachment and continuation of US/Sino trade tariffs negotiations. Speaking on the latter, U.S. President Donald Trump on Friday suggested he could sign a long-awaited trade agreement with China in the farm state of Iowa, which has been hard hit by tariffs in a nearly 16-month trade war between the world’s largest economies.
“We’re looking at a different couple of locations. It could even be in Iowa,” he told reporters at the White House. “We’re discussing locations, but I like to get deals done first.”
Trump and Xi had been expected to ink the agreement at the Asia Pacific Economic Cooperation summit in Santiago, Chile from Nov. 16-17, but those plans were thrown into disarray on Wednesday when Chile withdrew as host of the meeting.
Trump said he would prefer to sign the agreement in the United States. “I would do it in the U.S.,” he said. Asked if Xi would too, Trump said: “He would too.”
He said Iowa, a key state in the 2020 presidential election in early February, would be a good location.
“We’re thinking about Iowa, you know why, because it would be the largest order in history for farmers. So to me, Iowa makes sense. I love Iowa. It’s a possibility,” Trump said.
Concerning impeachment rush, President Donald Trump said on Friday he believed an “angry majority” of American voters will support him against an impeachment inquiry as he sought to rally his supporters to voice their opposition to the Democratic attempt to oust him.
“The American people are fed up with Democrat lies, hoaxes and extremism,” said Trump. The Democrats, he said, “have created an angry majority that will vote many do-nothing Democrats out of office in 2020.”
A Washington Post-ABC News poll released on Friday said Americans are sharply divided on impeachment, with 49 percent saying Trump should be impeached and removed from office, while 47 percent saying he should not.
Trump also voiced confidence that he will be able to defeat any Democrat who he ends up opposing in the November 2020 election.
“We’re kicking their ass,” he said.
For the truth sake, neither impeachment rush nor possible Iowa meeting have no significant impact on the market, because investors already in habit with these soap operas and discount any news that appear on these subjects.
Last week we also do not see big changes in Net positions. Thus CFTC shows that EUR net position stands short and almost at the same level as week before:
Source: cftc.gov
Charting by Investing.com
At the same time net short position on GBP has dropped two times within two weeks, which shows that investors keep positive look on Brexit finish.
At the same time, political news aside, economy situation in UK stands far from perfect. As recent Fathom Consulting research shows -
Fathom’s UK Economic Sentiment Indicator (ESI) was -0.2% in September, unchanged from the figure for August. It has not registered such a low reading since the tail end of the 2008/09 recession. Our UK ESI provides a useful indicator of the underlying pace of economic activity, and tends to be less volatile than the official measure of GDP growth. With the date of the UK’s departure from the EU now further postponed, and with the prospect of a general election within the next few months, the risks to UK economic sentiment and to economic growth lie to the downside.
While investors calm down a bit recently, as finally Brexit process is controlled by its "master" B. Johnson. This has provided some order at least, in this procedure that was looking chaotic in T. May premiership. Still fundamental problems are yet to come on surface and it is difficult to suggest how divorce will hit as UK as EU in longer term perspective.
Thus, this week's events tell one thing. The trend of US economy weakness that has started 1-2 months ago
continues and we've got new data that confirm it. It means that fundamental background of more EUR appreciation stands valid by far.
Technicals
Monthly
Last week we've talked about possible reversal month, suggesting more dovish Fed comments. As October candle is closed - now we could say that indeed, we've got it. In fact we celebrate every candle on monthly chart because it is long-term and brings changes not too often. Second - because it has more relation to fundamentals and changes on monthly chart as a rule reflects changes in fundamental background.
As it is started in September, it is totally formed in October and monthly chart confirms EU/US economy balance change. Bullish reversal candle has to have minor continuation at least. It means that on daily chart we should get moderate upward action in November-December. Sometimes reversal candles become starting point of major reversals on the market.
Now we come closer to the end of the year and second issue that might be interesting on EUR is YPS1. If EUR, by the end of the year will be able to hold above YPS1 - 2019 action could be treated as retracement of 2016 - 2017 rally. And EUR will keep chances on extension in 2020.
The major intrigue stands around fundamental background - it is changing. It is interesting whether its change will be strong enough to make impact on monthly chart and long lasting tendency here. As economy in EU hardly will improve soon - the major driving factor depends on US - how better/worse situation will be there.
Weekly
Trend stands bullish on weekly chart. Price shows strength as it totally reversed last retracement. All the rest situation stands the same. Technically, the nearest barrier here is 1.12-1.1235 area. It includes Fib level ( actually this is daily K-resistance), and upper border of the channel. Market is not overbought here. Next level is stronger and it stands at K-resistance of 1.1450-1.1520 area, and accompanied by OB level.
Thus, next week our major destination objective is 1.1235 area:
Daily
On Friday it was limited performance here as trading range almost equals to the Thursday. Still here we have indirect bullish signs. First is, we've got two side by side bullish grabbers which suggest upside continuation. Trend stands bullish here and market is not at overbought.
Second moment that seems important and lets us suggest that there should not be deeper retracement - tight standing near the top. Take a look that Thu-Fri action stands in tight range and EUR doesn't drop lower. Normally, when AB-CD action stands in progress - downside action at "C" point comes faster. Here we have opposite type of action. This makes me think that if all other things will stand equal - next week we should get upside continuation.
Intraday
In short-term perspective we have upside butterfly and its objective points agree with daily K-area. Price action is forming bullish flag right under previous top, which is bullish sign. Once 1.1235 area will be hit, odds suggest moderate pullback. It means that daily traders should wait for this pullback and do not hurry with position taking.
Conclusion:
Data and news that we've got this week confirms our fundamental view. Changing of US/EU economy balance already finds reflection in EUR/USD price level. We suggest that this tendency should continue in medium-term perspective.
This week we've got few events of fundamental content, but all of them brought mixed results. First, we've got GDP release. Despite that major number was better than expected (1.9% vs. 1.6%) - additional ratios have shown weaker meanings.
As Reuters reports - Gross domestic product increased at a 1.9% annualized rate in the third quarter, as declining business investment was offset by resilient consumer spending and a rebound in exports, the government said in its advance estimate of GDP.
The data “pointed to below trend growth, but still relatively steady and pretty solid growth in the context of
what’s going on in the rest of the world,” said Erik Nelson, a currency strategist at Wells Fargo in New York.
Other data showed that U.S. private employers added 125,000 jobs in October, slightly above economists' expectations.
It is good that we've got 1.9% GDP in III Q, but at the same time we've got slowdown in Sales from 3% in IIQ to 2%, PCE Prices also has dropped to 1.5% from 2.4%, and real consumer spending also decreased 1.5 times. These indicators that we've mentioned are not primary and attract less investors' attention, but they show real background, splitting GDP indicator into parts. And they show that US economy is slowing and can't holds the pace that was in the beginning of the year, despite all Fed efforts to act in advance.
Next day the dollar fell to a 10-day low against a basket of major currencies as investors evaluated whether the Federal Reserve would continue to cut rates, and after European data beat expectations.
The Fed on Wednesday lowered its policy rate by a quarter of a percentage point to a target range of 1.50% to 1.75%.
It also dropped a previous reference in its policy statement that it would “act as appropriate” to sustain the economic expansion - language that was considered a sign of future rate cuts.
Market participants remain concerned about a slowdown in the U.S. economy as the trade war between the United States and China continues, however, which could force the Fed’s hand.
“The new, slightly shorter, statement tries to keep their options open and puts them back into a data-dependent mode, but circumstances could mean that they have less optionality than they think,” said Tim Foster, portfolio manager at Fidelity International in London.
Speculators have been cutting their long dollar bets as the U.S. currency holds near historically high levels. Any improvement in global data may weigh on the dollar as investors bet on improving growth in Europe and other regions.
There is a view “that the dollar is expensive and as the global economy might be able to rebound next year, then the bias is to sell the dollar,” said Vassili Serebriakov, an FX strategist at UBS in New York.
Data released on Thursday showed euro zone economic growth was unchanged in the third quarter, beating market expectations that it would slow.
In the United States, consumer spending rose in September while wages were unchanged, which could cast doubt on whether consumers would continue to drive the economy.
The dollar dropped on Friday after data showed a mixed view on the economy, and as optimism that the United States and China will reach a deal to end their trade war reduced safe-haven demand for the greenback.
The dollar initially gained after U.S. jobs growth slowed less than expected in October, while wages gained and hiring in the prior two months was stronger than previously estimated.
“The data is much better than expected. Markets were braced, certainly in headline terms, for some much weaker numbers given the expected impact from the GM strike and the census hiring. So very good data in that context,” said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto.
Striking workers who do not receive a paycheck during the payrolls survey period are treated as unemployed. The strike by about 46,000 workers at GM plants in Michigan and Kentucky ended last Friday.
Temporary census workers also left their jobs during the month.
The U.S. currency was unable to hold onto the gains, however, and was further dented after the Institute for Supply Management (ISM) said the manufacturing sector contracted for the third consecutive month in October.
Concerns about a slowing American economy is weighing on the greenback, however, with the U.S. central bank expected to resume rate cuts if the economic data worsens.
“There is a bit more vulnerability starting to feed into the dollar, with perhaps the U.S. economy slowing down,” Osborne said.
Fed Vice Chair Richard Clarida said on Friday that the rate cuts put into effect leave the U.S. economy better armed to withstand the risks of a global slowdown.
Safe-haven flows into the U.S. currency have also weakened on optimism that the United States and China are close to reaching a deal to end their trade war, which has been blamed for slowing global growth.
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin made progress on a variety of issues during a telephone call on Friday with China’s Vice Premier Liu He about an interim trade agreement, USTR said in a statement on Friday.
The euro held its gains against the dollar on Friday as investors sold the U.S. currency, expecting the United States will soon join the global economic slowdown.
The dollar and the Japanese yen, both seen as safe-haven investments, appreciated equally each time the United States looked deadlocked in its trade dispute with China.
But the dollar is losing that status, after poor U.S. economic data. Investors do not share the Federal Reserve’s confidence in the economic outlook because of the risks posed by the trade war, which contributed to declines by the dollar and U.S. Treasury yields.
Therefore, “momentum is there for further short-term gains if we see a downside surprise” in U.S. non-farm payrolls on Friday, said MUFG analysts in a note to clients.
“Fed Chair (Jerome) Powell justified much of his optimism this week on a strong jobs market and continued strong consumer spending ...(so) risks are building of a sharper slowdown that would seriously question current market pricing of just one rate cut over the coming twelve months,” the analysts said.
Money markets are pricing in a 25-basis-point cut by June 2020, Refinitiv data showed.
“Following the Fed rate meeting, the market not only feels confirmed in its rate cut expectations, it has even raised them,” Commerzbank analysts said in a note to clients, citing the reports of Chinese doubts about a trade deal.
“The ISM index and the U.S. labour market report today will be decisive for whether the economic pessimism about the U.S. and thus the rate cut expectations as well as dollar weakness will continue short term,” the analysts said.
Data showed a mixed view on the economy, and as optimism that the United States and China will reach a deal to end their trade war reduced safe-haven demand for the greenback.
The dollar initially gained after U.S. jobs growth slowed less than expected in October, while wages gained and hiring in the prior two months was stronger than previously estimated.
“The data is much better than expected. Markets were braced, certainly in headline terms, for some much weaker numbers given the expected impact from the GM strike and the census hiring. So very good data in that context,” said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto.
The U.S. currency was unable to hold onto the gains, however, and was further dented after the Institute for Supply Management (ISM) said the manufacturing sector contracted for the third consecutive month in October.
The dollar has weakened since the Federal Reserve on Wednesday cut interest rates for the third time this year, and indicated that further reductions may not be forthcoming.
Concerns about a slowing American economy is weighing on the greenback, however, with the U.S. central bank expected to resume rate cuts if the economic data worsens.
“There is a bit more vulnerability starting to feed into the dollar, with perhaps the U.S. economy slowing down,” Osborne said.
Among other events we could mention long lasting opera on D. Trump impeachment and continuation of US/Sino trade tariffs negotiations. Speaking on the latter, U.S. President Donald Trump on Friday suggested he could sign a long-awaited trade agreement with China in the farm state of Iowa, which has been hard hit by tariffs in a nearly 16-month trade war between the world’s largest economies.
“We’re looking at a different couple of locations. It could even be in Iowa,” he told reporters at the White House. “We’re discussing locations, but I like to get deals done first.”
Trump and Xi had been expected to ink the agreement at the Asia Pacific Economic Cooperation summit in Santiago, Chile from Nov. 16-17, but those plans were thrown into disarray on Wednesday when Chile withdrew as host of the meeting.
Trump said he would prefer to sign the agreement in the United States. “I would do it in the U.S.,” he said. Asked if Xi would too, Trump said: “He would too.”
He said Iowa, a key state in the 2020 presidential election in early February, would be a good location.
“We’re thinking about Iowa, you know why, because it would be the largest order in history for farmers. So to me, Iowa makes sense. I love Iowa. It’s a possibility,” Trump said.
Concerning impeachment rush, President Donald Trump said on Friday he believed an “angry majority” of American voters will support him against an impeachment inquiry as he sought to rally his supporters to voice their opposition to the Democratic attempt to oust him.
“The American people are fed up with Democrat lies, hoaxes and extremism,” said Trump. The Democrats, he said, “have created an angry majority that will vote many do-nothing Democrats out of office in 2020.”
A Washington Post-ABC News poll released on Friday said Americans are sharply divided on impeachment, with 49 percent saying Trump should be impeached and removed from office, while 47 percent saying he should not.
Trump also voiced confidence that he will be able to defeat any Democrat who he ends up opposing in the November 2020 election.
“We’re kicking their ass,” he said.
For the truth sake, neither impeachment rush nor possible Iowa meeting have no significant impact on the market, because investors already in habit with these soap operas and discount any news that appear on these subjects.
Last week we also do not see big changes in Net positions. Thus CFTC shows that EUR net position stands short and almost at the same level as week before:
Source: cftc.gov
Charting by Investing.com
At the same time net short position on GBP has dropped two times within two weeks, which shows that investors keep positive look on Brexit finish.
At the same time, political news aside, economy situation in UK stands far from perfect. As recent Fathom Consulting research shows -
Fathom’s UK Economic Sentiment Indicator (ESI) was -0.2% in September, unchanged from the figure for August. It has not registered such a low reading since the tail end of the 2008/09 recession. Our UK ESI provides a useful indicator of the underlying pace of economic activity, and tends to be less volatile than the official measure of GDP growth. With the date of the UK’s departure from the EU now further postponed, and with the prospect of a general election within the next few months, the risks to UK economic sentiment and to economic growth lie to the downside.
While investors calm down a bit recently, as finally Brexit process is controlled by its "master" B. Johnson. This has provided some order at least, in this procedure that was looking chaotic in T. May premiership. Still fundamental problems are yet to come on surface and it is difficult to suggest how divorce will hit as UK as EU in longer term perspective.
Thus, this week's events tell one thing. The trend of US economy weakness that has started 1-2 months ago
continues and we've got new data that confirm it. It means that fundamental background of more EUR appreciation stands valid by far.
Technicals
Monthly
Last week we've talked about possible reversal month, suggesting more dovish Fed comments. As October candle is closed - now we could say that indeed, we've got it. In fact we celebrate every candle on monthly chart because it is long-term and brings changes not too often. Second - because it has more relation to fundamentals and changes on monthly chart as a rule reflects changes in fundamental background.
As it is started in September, it is totally formed in October and monthly chart confirms EU/US economy balance change. Bullish reversal candle has to have minor continuation at least. It means that on daily chart we should get moderate upward action in November-December. Sometimes reversal candles become starting point of major reversals on the market.
Now we come closer to the end of the year and second issue that might be interesting on EUR is YPS1. If EUR, by the end of the year will be able to hold above YPS1 - 2019 action could be treated as retracement of 2016 - 2017 rally. And EUR will keep chances on extension in 2020.
The major intrigue stands around fundamental background - it is changing. It is interesting whether its change will be strong enough to make impact on monthly chart and long lasting tendency here. As economy in EU hardly will improve soon - the major driving factor depends on US - how better/worse situation will be there.
Weekly
Trend stands bullish on weekly chart. Price shows strength as it totally reversed last retracement. All the rest situation stands the same. Technically, the nearest barrier here is 1.12-1.1235 area. It includes Fib level ( actually this is daily K-resistance), and upper border of the channel. Market is not overbought here. Next level is stronger and it stands at K-resistance of 1.1450-1.1520 area, and accompanied by OB level.
Thus, next week our major destination objective is 1.1235 area:
Daily
On Friday it was limited performance here as trading range almost equals to the Thursday. Still here we have indirect bullish signs. First is, we've got two side by side bullish grabbers which suggest upside continuation. Trend stands bullish here and market is not at overbought.
Second moment that seems important and lets us suggest that there should not be deeper retracement - tight standing near the top. Take a look that Thu-Fri action stands in tight range and EUR doesn't drop lower. Normally, when AB-CD action stands in progress - downside action at "C" point comes faster. Here we have opposite type of action. This makes me think that if all other things will stand equal - next week we should get upside continuation.
Intraday
In short-term perspective we have upside butterfly and its objective points agree with daily K-area. Price action is forming bullish flag right under previous top, which is bullish sign. Once 1.1235 area will be hit, odds suggest moderate pullback. It means that daily traders should wait for this pullback and do not hurry with position taking.
Conclusion:
Data and news that we've got this week confirms our fundamental view. Changing of US/EU economy balance already finds reflection in EUR/USD price level. We suggest that this tendency should continue in medium-term perspective.