Forex research

[Alpari]

Daily Market Update - 7 January 2014 - Alpari UK

[video=youtube;2mcizHcNoPM][/video]

Yellen voted for as next Fed chair - 00:17
Australian trade deficit shrinks - 00:54
Strong data out of Germany boosts markets - 1:54
Eurozone inflation falls to 0.8% - 3:08

Research analyst Joshua Mahony discusses the key topics in the markets today, including Janet Yellen being voted for as the new Fed chair. He also discusses the positive Australian trade balance seen overnight. For the European session he mentions the German data releases and the fall in Eurozone inflation.

 

[Alpari]

UK Opening Call from Alpari UK on 8 January 2014

Today’s UK opening call provides an update on:

• Eurozone unemployment rate expected to remain below record high levels;
• Eurozone retail sales expected to improve for only the third month since April 2011;
• Focus on job creation and the Fed during the US session later.

European indices are expected to open higher on Wednesday, as the business end of the week gets underway with retail sales and unemployment data for the eurozone, followed later by employment data for the US and the December FOMC minutes.

We have seen a pickup in activity over the last couple of days, as traders return to their desks following the winter break, but trading volumes have still been a little lower than normal due to the large number of high volatility events scheduled for the end of the week. Well things should pick up more today, with a number of important pieces of economic data due to be released, followed this evening by the FOMC minutes.

This morning the focus will be on the eurozone, where we’ll get the latest update on the unemployment situation. Things have improved significantly in the eurozone in the last six months, with a number of countries, and the region as a whole climbing out of recession, confidence in the region growing as seen by the substantial improvement in the PMI readings, and two countries, Ireland and Spain, exiting their respective bailout programs. I wouldn’t say things are looking rosy for the currency block, by any stretch of the imagination, but compared to this time last year, they’re looking much better.

This has been reflected in the unemployment rate over the last year. This time last year we were still seeing the consistent monthly increases in the rate of unemployment which saw it climb to record highs almost every month. Over the last year though, the rate has stabilised and very slowly started to decline. As we’ve seen already, the decline in the unemployment rate is going to be much slower than the rise, but the fact we’re headed in the right direction must be viewed as a positive. Especially when we remember how bad things were looking a year ago. The rate is expected to remain at 12.1% in November but as long as we don’t see a return to record high levels, I think this will be viewed as a positive result.

We’ve also seen an improvement in eurozone retail sales in the last six months, with the rate of decline falling sharply to the point that we actually saw year on year growth in both May and September. Given that the last year on year growth in retail sales prior to this came in April 2011, we have to view this as a sign that conditions are improving.

What this means is that consumers across the region are more confident in the recovery and are spending more as a result. This could now start off the positive spiral of businesses performing better and therefore hiring more, which in turn leads to more consumer spending and so on and so forth. Retail sales data today is expected to show a third positive month of retail sales in November, at 0.3%, which again support the view that while the recovery is small, it is gathering momentum.

There’s plenty more to come later on in the US, where we’ll get the first indication of job creation in December. The ADP non-farm employment change figure is generally seen as an estimate, albeit not a very accurate one, of the non-farm payrolls figure which will be released on Friday. This should give us some insight into whether the improvement in the labour market seen in October and November continued into the end of the year, and whether the Fed was therefore right to reduce its bond buying program in December.

We should also get more details about that decision later on when the minutes from the December FOMC meeting are released. It will be interesting to see how the policy makers voted on asset purchases and how this may impact the rate of reductions further down the line.

Ahead of the open we expect to see the FTSE up 2 points, the CAC up 5 points and the DAX up 2 points.

Read the full report at Alpari News Room​

 

[Alpari]

US Opening Call from Alpari UK on 8 January 2014

Today’s US opening call provides an update on:

• US futures lower ahead of some key releases on Wednesday;
• ADP figure to give insight into Friday’s NFP figure;
• FOMC minutes could contain roadmap for future asset purchase reductions.

US indices are expected to open lower on Wednesday, ahead of the release of some key economic data and the FOMC minutes from the December meeting.

What we may be seeing so far in the futures market is a little risk aversion ahead of some key releases today. While the ADP non-farm employment change isn’t really seen as an accurate estimate of the non-farm payrolls figure, which is due to be released on Friday, it can be a useful indicator of whether we’re going to see a good or bad number.

The Fed may have finally announced its first taper in December, but we’re still seeing $75 billion of asset purchases every month, making the jobs report, and therefore the ADP figure, extremely important. The markets may not have reacted to the first taper because it was relatively small but that doesn’t mean we won’t see a bigger reaction if the data supports a larger taper, say $20 billion.

I still think the Fed will be very cautious at the next meeting at the end of January, reducing the asset purchases by only $10 billion again as long as the data continues to suggest the recovery is gaining momentum. But that doesn’t mean that investors won’t panic should we see a number significantly above 200,000, for example. It wouldn’t be the first time.

The FOMC minutes will probably be of bigger interest to investors, as they should provide further insight into roadmap for future asset purchase reductions. Fed Chairman Ben Bernanke gave us some insight during the press conference in December, but the minutes should fill in some of the blanks.

It should also tell us which members were in favour of a reduction and which were against, and what that means for this year now that some members have been replaced.

Finally, we should get more information about what will be required from the economic data in order to maintain a constant $10 billion reduction going forward, as well as what we’d need to see in order to justify a larger/smaller reduction.

Ahead of the open we expect to see the S&P up 7 points, Dow up 69 points and the NASDAQ up 13 points.

Read the full report at Alpari News Room​

 

[Alpari]

Daily Market Update - 8 January 2014 - Alpari UK

[video=youtube;Q1hG8KYJYwM][/video]

Markets lower. Paring yesterdays gains - 00:09
Eurozone retail sales pick up after December sales - 00:24
Eurozone unemployment remains at 12.1% - 01;40
German factory orders continue strong week for the European powerhouse - 02:10

 

[Alpari]

Reaction to FOMC minutes

The minutes from the December FOMC meeting offered the markets very little in terms of insight into future asset purchase reductions. This can clearly be seen by the reaction, or lack of, in the US dollar, which strengthened mildly against the other currencies before almost returning back to where it traded before the minutes were released.

One thing we did learn from the minutes is that policy makers in general were in favour of a reduction in purchases due, in pary, to the waning benefits from the monthly purchases. In fact, some members even favoured a larger reduction, although I think it’s safe to say they were in the majority, and that this would have been a mistake as it would have caused an unnecessary shock in the financial markets. The end of the Fed’s third round of quantitative easing program is near, there’s no need to rush it.

Going forward, while the Fed didn’t lay out a roadmap for the end of quantitative easing, the minutes did suggest that the reductions would be gradual and close attention would be paid to the inflation rate throughout the process. All things considered, these minutes have told us nothing we don’t already know. But that doesn’t really matter because we’re already very aware of the answers we were looking for.

The QE3 program will almost certainly come to an end this year, probably in the third quarter. The rate of tapering will depend on the economic data and the impact of the reductions on the inflation rate. What investors were looking for in the minutes was for the Fed to provide a definite timetable for the tapering and unfortunately, we should know by now that this is not going to happen. They’re not foolish enough to do this when they know that if the data suddenly takes a turn for the worse, they must respond in a way that doesn’t damage the recovery.

Read the full report at Alpari News Room​

 

[Alpari]

UK Opening Call from Alpari UK on 9 January 2014

Today’s UK opening call provides an update on:

• BoE rate decision expected to be another non-event;
• ECB expected to leave policy unchanged, press conference should be interesting though;
• US indices continue poor start to 2014 despite strong ADP figure.

The Bank of England is expected to leave monetary policy unchanged this month, which will come as no surprise to anyone, given the recent comments from the central bank, the falling inflation rate and improving economy. The BoE monetary policy decision has been a bit of a non-event in recent months, having very little or no impact on the markets.

One thing investors will be looking out for is a potential revision to the central banks forward guidance. Unemployment has fallen much faster than the central bank expected and now lies only 0.4% above the threshold that they previously claimed would be the point when they start to consider an interest rate hike. It is worth noting at this stage that they have repeatedly stated that this is just the point at which they’ll consider it, it’s not a trigger.

That said, what it means is that the forward guidance doesn’t actually provide assurances about low interest rates to anyone, be they businesses or households. The only way to do this would be to lower the threshold to 6.5%, or lower. I don’t expect this to come today though, although that won’t stop people paying close attention to this announcement just in case it is accompanied by a statement that provides an update on the forward guidance.

The other key central bank decision today will come from the European Central Bank. As with the BoE, no change is expected from the ECB, although this is likely to be a far more interesting affair for two reasons. The first is that inflation fell again last month to 0.8%, only 0.1% above the level that prompted the ECB to cut interest rates to record lows of 0.25% back in November.

While I don’t expect a repeat of this today, this would suggest that some form of action from the ECB in the coming months is certainly not off the table. This brings me to the second reason, the press conference. Unlike the BoE, the ECB always follows the rate decision with a press conference, in which its President Mario Draghi reads out a statement before answering questions. Financial markets tend to be very responsive to Draghi’s comments throughout his press conference.

With interest rates at 0.25%, the ECBs hands are a little tied when it comes to further rate cuts, which means if they want to provide further stimulus to slow down the rate of disinflation, they will have to explore other options, such as additional forward guidance, negative deposit rates, LTRO’s or quantitative easing, although I think the last is very unlikely. It is likely to take them a little longer to agree on which of these to opt for which is why I don’t expect a decision today.

This is why today’s press conference could be so important as we could get some insight into what options are on the table for the upcoming meetings, and which of these options are favoured most by the board members. Based on previous meetings, I imagine the preferred route would be additional forward guidance. This is the easiest option for them as it doesn’t carry the risks that the other options do. At the same time, it could be much less effective. The previous attempt at forward guidance didn’t benefit them in the slightest, although that was due to the fact that it was so vague. If they are going to attempt this again, they are going to have to commit to much clearer thresholds.

US indices continued their negative start to the year, posting their fourth day of losses for the year, from the opening five trading sessions. This came despite a much higher than expected rise in ADP non-farm employment, which suggests Friday’s non-farm payrolls figure could be comfortably above 200,000. Given that investors have recently been responding positively to good economic data, this was a bit of a surprise.

The release of the FOMC minutes may have confused things a little. They showed an overwhelming majority voting in favour of a small taper in December, with a key reason behind the decision being the diminishing benefits of quantitative easing. This suggests that the improving economic outlook had less to do with it than initially thought. That said, it doesn’t really change the fact that the purchases are likely to be scaled back throughout 2014, with the program probably coming to an end in the third quarter.

Also, it’s worth pointing out that US indices ended 2013 at record highs. This negative start to 2014 isn’t necessarily a response to the data, as much as a little profit taking from investors before they start buying the dips again.

Ahead of the open we expect to see the FTSE up 11 points, the CAC up 13 points and the DAX up 18 points.

Read the full report at Alpari News Room​

 

[Alpari]

US Opening Call from Alpari UK on 9 January 2014

Today’s US opening call provides an update on:

• FOMC provides little impetus to the markets
• Chinese inflation falls to provide accommodative environment for PBOC
• BoE announcement brings forward guidance back to the fore
• ECB reconvene amid return of deflation talk.

The European indices and US futures are trading higher this morning, as the markets seek to erase much of the losses seen in yesterday’s session. Volume remains relatively low so far as traders deleverage moderately ahead of the ECB and BoE monetary policy decisions. Last night saw the release of the latest FOMC minutes from the key December meeting. Unfortunately, this provided few clues as to whether we are likely to see yet another taper in the January meeting, nor how policy with regards to tapering will be conducted going forward. One thing we did find out was that on the whole, committee members saw the use of quantitative easing as notably diminishing in effectiveness, something many within the city have been aware of for some time. That being said, whilst the effectiveness of the measure with regards to economic progress may be diminishing, the impact to the markets has certainly been a positive one. Thus the Fed are likely to be aware the biggest reaction to any taper would probably come from the markets.

On the whole, the minimal adverse reaction seen to the December taper can be attributed to a number of factors, from a well conveyed policy plan, to a well thought out reduction amount, or simply a focus upon strong economic performance. However, overall I believe the strong markets in the period following the decision to taper are a reflection of diligent expectation management on the half of Ben Bernanke and co.

Overnight, the Chinese inflation rate fell unexpectedly to 2.5% from 2.7%, bringing a degree of breathing room for the PBOC going forward. Now China, unlike most developed countries, is quite comfortable with a higher level of inflation understanding it is a side-effect of such high growth. The imposition of a top end target of 3.5% means that there is now a clear 1% difference between the current and top end levels. This must be music to the ears of Governor Zhou Xiaochuan as it allows for further varied stimulus which has been used liberally throughout 2013. The decision to prop up the economy sporadically throughout the weakening growth seen last year has allowed us to now see the GDP level pull back to 7.8% in Q3 from the 7.5% the quarter prior. Overall the fact that such measures can continue to be implemented is a good thing for the global economy as a strong China is positive for global trade and prosperity.

Today marks the release of both the ECB and BoE monetary policy decisions, the ground of substantial volatility throughout 2013. However, the importance of these meetings have faded somewhat with the implementation of forward guidance, for the UK in particular. The first of these two meetings comes from the Bank of England, where Mark Carney is expected to embark on a fairly run of the mill meeting. Carney’s decision to stand by a policy of forward guidance is arguable in effectiveness, however it certainly has calmed markets and reduced volatility given the more predictable nature of these monthly meetings. However, no sooner had the market anxiety regarding the impact of inflation upon forward guidance dissipated, that the impact of the rapidly diminishing unemployment rate come into play. The fact that the headline rate of unemployment has managed to fall 0.5% in the period following Carney’s imposition of the policy should be seen as positive to many. However, with the previous 5 month period showing a 0% shift, he would be forgiven for cursing the unpredictability of this move. Ultimately it has meant that at no point during the 5 month existence of this policy have people been able to fully believe in its validity owing to first inflation and now unemployment worries.

There is little expected from Mark Carney in terms of a change in tact at today’s meeting, having previously announced that the 7% threshold at which interest rate hikes will be considered will not be amended. That being said, as we come closer to that magic level, one begins to question whether he will in fact take further steps to provide a more tangible step to provide businesses and people alike with at least a moderate period of certainty as to the expectations of rates going forward. Granted, the rate has fallen sharply over the last 6 months, yet whether this trajectory will persist is questionable. Thus whether Carney sees fit to let people realise that themselves or whether he will provide greater clarity to the markets is something we are hoping to find out in the coming meetings. For today, there is little expected in terms of tangible policy amendments from the BoE, where all the focus will be upon any changes to the statement.

Later in the day, the ECB will release their latest monetary policy decision, with a similar story to last month’s meeting expected. One thing has changed, with the key inflation rate falling yet again, this time to 0.8%. It was the fall to 0.7% in late 2013 which pushed Mario Draghi into unexpectedly reducing the headline interest rate by 25 basis points. Some saw that measure as a jerk reaction, however the inflation rate has been on a near constant negative trajectory since the July announcement of 1.6%. Unfortunately, whilst the expectation was for the reduction in rates to have a more tangible effect upon the inflation rate in this month’s figure, the fall back to 0.8% announced on Tuesday shows that the impact monetary policy seems to have upon inflation in the Eurozone is somewhat minimal and thus alternate measures are more likely to be considered. Such measures such as quantitative easing, LTRO’s or forward guidance are an option. Or of course, there is the possibility of further reducing rates, with Draghi having mentioned the possibility of negative rates on a number of occasions. Either way, Tuesday’s inflation announcement has stepped up the importance of this meeting and thus markets will be watching closely to see how Draghi will intervene to avoid the risk of dreaded deflation.

US markets are expected to open higher, with the S&P500 +5 and DJIA +58 points.

Read the full report at Alpari News Room​

 

[Alpari]

Technical Analysis -- 9 January 2014 - Alpari UK

[video=youtube;P8hvUB09vxs][/video]

 

[Alpari]

Reaction to ECB rate decision and statement

Once again the markets have overreacted to the statement from the ECB, which came following the decision to leave interest rates at 0.25% despite inflation falling to 0.8% in December.

The euro fell more than 0.5 cents against the dollar following Mario Draghi’s speech this afternoon and many are pointing to the strengthening stance on forward guidance to explain this. I’m not convinced. I believe there’s one of two things going on here.

Either this text is being used as an excuse to temporarily short the euro, in which case I’d expect it to return to pre-press conference levels, around 1.36, by the end of the day. Or alternatively, traders were looking for any opportunity to short the euro, and the “strengthening stance on forward guidance” is simply an excuse to go short.

The key difference here is the markets view on the euro currency going forward. If this was merely a response to the text, the sell-off in the euro should pause for now. If this is just a case of the market looking for any catalyst, I’d expect the euro to make further losses as the day continues.

The main reason for the scepticism is that I don’t believe that this “strengthening stance” actually tells us anything new about the ECBs view on the economy and their response to the ongoing crisis. We’re fully aware of the low inflation levels in the euro area as this has been raised at numerous meetings and press conferences previously.

Draghi has also been clear at recent press conferences that the central bank expects inflation to remain low for some time to come and return to its target in the medium to long term. He has also made it clear that rates will remain low for an extended period of time, without setting a definitive time period or setting any thresholds. With this in mind, the text offers nothing new.

Read the full report at Alpari News Room​

 

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