Timeless Fx

Friday, 27 September 2013

Thursday, 26 September 2013

The currently only steady factor is the permanent change on a day to day basis as markets are once more in the grip of political events, whether it is the aftermath of the German elections or the upcoming showdown in the US parliament concerning the budget. The latter seems to pressure the USD which has lost ground across the board yesterday. That said we keep a close eye on key-support between 80.053 and 79.58 (int. 76.4 %/weekly trend) in the USD Index as only a break below would open the door for a deeper USD setback. The same applies for EUR/USD and Cable where it would take breaks above the 1.3600 handle or above 1.6115 (minor 76.4 %) to support an extension of the latest USD decline. As long as these USD supports are not broken decisively though, we see the start window for a broader USD up-swing as open. A weekly close above 1.3600 would on the other hand favour a potential extension to 1.3923 (monthly Ichimoku-lagging), to monthly trend line resistance at 1.4041 and possibly to the 76.4 % retracement on higher scale at 1.4259. To get the USD out of the danger zone it would take breaks below pivotal support at 1.3452 in EUR/USD or below internal 38.2 % retracements on different scale at 1.5883 and at 1.5758 in Cable. Above the latter, an extension to the upper triangle resistance at 1.6325/37 (weekly.-monthly) can’t be excluded yet. No news on the JPY front where USD/JPY and JPY crosses traded in fairly tight ranges yesterday. The start window for a broader JPY recovery is therefore still open but in order to receive first evidence that the latter is indeed materialising it takes breaks below pivotal support at 132.16 in EUR/JPY, below 156.43/37 (pivot/minor 38.2 %) in GBP/JPYand below 97.64/61 (minor 61.8 %/daily trend) in USD/JPY. Above these key-supports, an extension to higher targets at 138.35/139.14 (Fib.-projection/2009 high) in EUR/JPY and at 162.30/163.11 (Fib.-projection/2009 high) in GBP/JPY can’t be excluded yet.

· Short 2 units EUR/MXN from 17.4495 avg., targets 16.50/15.40, stop at 18.40

· Long 1 unit CAD/JPY from 82.22, target 103.50, stop at 91.15 (2013 outlook trade)

EUR/USD daily – A range breakout between 1.3600 & 1.3452 is needed for directions

· Having defended key-pivotal support at 1.3452 yesterday we still haven’t received any clarity whether this market is going to extend to the upside or whether it is just taking a break before breaking lower.

· That said, it probably takes a break above the 1.3600 handle to put the odds in favor of a straight extension to 1.3923 (monthly Ichimoku-lagging), to 1.4041 or to 1.4259 (monthly trend/76.4 %) whereas a break below 1.3452 (pivot) would at least challenge key-support between 1.3218/10 (minor 76.4 %/daily trend) and 1.3170 (200 DMA).

GBP/USD daily – No confirmed top in place yet

· The big picture remains blurry for the moment as a major game change would only be confirmed above 1.6337 (monthly triangle) and a top in place would only be indicated via a break below 1.5883 (minor 38.2 %).

· That said and particularly as long as the latter is not taken out, we still see the possibility of extending the upside for a proper test of 1.6337 which would be indicated via a decisive hourly close above 1.6115 (i.e. above 1.6150). A break below 1.5883 would on the other hand have to be confirmed via a break below 1.5758 (int. 38.2 %).

EUR/GBP daily– A range breakout between 0.8354/52 & 0.8504 is needed for directions

· Having exactly reached the projected target for a potential C-wave down at 0.8354 (C= A) the decision is due whether we have just seen an intermediate setback in an intact, long-term up-trend or whether we are dealing with a broader downtrend.

· The latest bounce from 0.8355/54 (daily trend channel/C = A) did in every which case not surprise but in order to start favoring the bullish green scenario it would now take breaks above 0.8467 and 0.8504 (minor 38.2 %/pivot).

· A failure to clear the latter and/or a break below 0.8355/54 would play in the hands of the bears (blue scenario) who would most likely not hesitate to push for an extension towards 0.8285 (50 %) and to 0.8219 (internal wave 3 projection). These would however only be interim targets on the way to a test of the lower T-junction at 0.8005 (int. 76.4 %).

EUR/MXN daily –The latest rebound looks to be a counter trend rally only

· The big picture in the monthly chart from the 2009 top down shows a huge triangle formation of which we believe the D-wave high has been marked at 17.8874 last month.

· That said we expect the upside to be capped at 17.6903 (minor 76.4 %) and the E-wave down to its classical target at 16.4646 to unfold shortly.

· For the latter to receive first support it would now take a break below 17.4774/4723 (pivot/minor 38.2 %) whereas only breaks below 17.3178 (minor 76.4 %) and below 17.2223 (pivot) would provide the final confirmation.

· A decisive break above 17.6903 would on the other hand challenge monthly.-weekly trend line resistance at 18.0598/18.0714 if not the 76.4 % retracement on higher scale at 18.2175.

USD Dollar Majors and oil Weekly Update

usdindex

Dollar Frozen on S&P 500’s Longest Tumble in 16 Months

Activity for the Dow Jones FXCM Dollar Index – measured by the Average True Range – has dropped

sharply from last week’s post-FOMC volatility swell. In fact, the benchmark currency is just off its

lowest levels of activity in five months. This lack of performance may strike some as unusual given

the S&P 500 has extended a five-day drop – its most consistent tumble since May of last year. Yet,

as persistent as the slide for the benchmark of risk appetite has been, there is little conviction behind

the move. We can measure that in both implied and realized volatility measures. The VIX Index (often

referred to as the ‘fear’ gauge) has trended towards six year lows for some time. Yet the measure

of actual or realized volatility has itself collapsed to similar lows this week. While a trend in a market

index like the S&P 500 can run astray of fundamentals for an extended period due to stimulus and

other factors, risk conditions can only remain submerged for only so long.

GBPUSD

British Pound Advances Despite BoE’s Yield Reassurance, Yield Drop

An improved yield forecast has been a key catalyst in the sterling’s recover over recent weeks and

months. However, policy officials have done everything they can to curb speculation that an improved

growth forecast and distaste for QE expansion would translate into earlier rate hikes. The Bank

of England (BoE) has reiterated its vow to keep rates at their exceptionally low level until 2016. It

seemed the central bank did the same with the Financial Policy Committee meeting minutes that

were released this past session – even though that deviates somewhat from its focus. The report

attempted to play down higher rates as a reaction to growth and Fed Taper fears. Nevertheless, yield

forecasts are still seeing a hike in 2015 with a probability of 2014. That said, a lot of hawkishness

has been priced into the sterling. Where the BoE may not be able to shake the market’s convictions,

disappointing data could. The 10-year Gilt yield has recently dropped to its lowest level (2.75 percent)

in a month. Further retracement may evolve into a serious selling point for a yield-hopeful currency.

GBP/USD daily – No confirmed top in place yet

EURUSD

Euro Unconvinced of Greece’s Assurances No Third Bailout Necessary

According to Greece’s Deputy Prime Minister (and Foreign Minister) Evangelos Venizelos, Greece

will not need a third bailout. This has been a point of considerable speculation – though not active

positioning – in the FX market as EU officials, Germany Finance Minister Scheauble and others have

speculated such an outcome was essentially inevitable. Yet, in an interview with Reuters, Venizelos

said the country could avoid asking for a third round of aid with better terms for its existing program

and a return to the capital markets. This is exceptionally optimistic for a country that has proven

consistently over-reaching with its forecasts. As it happens, another report made the wires quoting

Troika sources that suggested officials were sceptical of Greece’s ability to hit a primary surplus – a

prerequisite to altering terms on its bailout.

USDJPY

Japanese Yen Drops Sharply on Confirmation of Impending Stimulus

In the early Tokyo hours, the Japanese was flat-lining when the Nikkei 225 opened to a sharp 1.4

percent tumble below 14,500 – a closely watched, even figure. This break leveraged the potential

for an Asia-session risk shift that could generate momentum in an otherwise aimless market and in

turn spark a sell off on the carry-backed yen crosses along the way. Yet, that drive was reversed

abruptly a few hours into active trade as news roused speculators to optimism. A few headlines hit

the newswires, but two stood out. According to the chief of the LDP tax panel, Prime Minister Abe will

produce his stimulus plans with his tax policies on October 1. Add to this, a Kyodo report suggested

the stimulus announcement would include plans to explore lower effective corporate tax rates to

encourage growth. Both are encouraging, however, they are not particularly original. We have heard

similar conjecture before. As such, yen crosses will struggle to rise on this news alone.

Oil

US Oil at Risk of Major Bear Shift Should $102 Break

With Wednesday’s close, US oil has fallen for five consecutive trading days. That matches the longest

series of losses for the commodity since May 2012. Unlike many other assets with a risk sensitivity,

oil has made a concerted drive that can press for further trend development. Standing in the way of a

full-scale bear trend is $102. This level is technically-heavy with a confluence of a multi-month range

floor, 100-day moving average and other cues. If the fundamental backdrop were allowing a simple

focus on the balanced risk backdrop, a ‘normalizing’ bounce would be in order. However, there is

another line of premium that can still be worked off through supply-and-demand. In the past week,

we have seen the Syrian crisis deflate and US-Iranian relations warm – easing Middle East supply

disruption concerns. Meanwhile, DoE oil inventories reported the second biggest jump (2.635 million

barrels) in three months while implied demand set an equivalent low (15.33 million barrels).

oil Zoom

Sunday, 22 September 2013

USOIL

USD MAJORS WEEKLY OUTLOOK

EURUSD

EUR/USD

Merkel’s third successive win boosted risk sentiment and therefore the single currency (while the greenback lost ground) but mostly, it seems that the re-emerging debt ceiling issue hurts again the dollar.The disappointing results from the manufacturing sectors in France, Germany and the bloc as a whole surprised investors on Monday morning, pushing the pair to the area of 1.3510 where seems to have found decent support so far. Short-term (2-year) Eurozone-US rate spreads remain within recent ranges, EUR/USD is likely to struggle to improve on the February high around 1.37. Spot looks to have overshot “fair value” based on spreads by a margin (two big figures or so) already. Either spot has to drop back or spreads need to contract more sharply to sustain the EUR rally. All eyes on Draghi's speech at 2pm so might see some choppy moves.

GBPUSD

GBP/USD
The pair looks set to remain under pressure in the upcoming sessions via the greenback, as much is happening across the pond after last week’s FOMC meeting. Key manufacturing gauges and significant Fedspeak will be in the spotlight today, amidst increasing chatter regarding the US debt ceiling. The UK current account deficit is still likely to be close to 4% of GDP in 2013 while the budget deficit will be around 7% of GDP according to the IMF. Structurally, a weaker exchange rate would help rebalance the economy while cushioning the impact of fiscal tightening. This trade-off between cyclical strength and structural weakness will likely be resolved by how successful the BoE's new forward guidance is in keeping interest rates low”.

AUDUSD

AUD/USD

We noted that an improvement in Chinese news-flow will probably help arrest the slide in economic growth expectations for the East Asian giant. China is Australia’s largest trading partner and a critical source of demand for the country’s pivotal mining sector. That meant that stabilization in China was likely to translate into an improved the outlook for Australian exports and the business cycle overall. This in turn would prompt a supportive shift in RBA monetary policy expectations and lay the groundwork for an Aussie recovery. The case for an upside scenario seemed all the more compelling against a backdrop of highly over-extended speculative net-short positioning and we proceeded to enter long AUD/USD after an attractive technical setup presented itself.

USDJPY

USD/JPY is heading dow nwards ahead of a new US political drama of “debt-ceiling”

While Fed’s Saint Louis Fed president Bullard, mentioned that the U.S. central bank might move next month to reduce stimulus spending (i.e. we could guess that the American dollar could move higher today), things are entirely different, it seems that the re-emerging debt ceiling issue hurts again the dollar. Funding for the US government’s daily operations expires on 30 Sep, with a government shut-down possible due mostly to bitter divisions within Republicans. In addition, it is plausible that there also harsh divisions between Republicans and Democrats as well, but what traders should keep mostly in mind is that the last time the issues of debt ceiling resurfaced (August,2011) it led markets to a massive risk-aversion environment.

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