30 / 11 / 2017 | Technical Analysis

Technical Analysis 30.11.2017 - CAD/CHF: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is below Kijun-sen, the lines are horizontal . Confirmative line Chikou Span is below the price chart, current cloud is descending. The instrument is trading below Tenkan-sen and Kijun-sen lines; the Bearish trend is still strong. One of the previous minimums of Chikou Span line is expected to be a support level (0.7645). The closest resistance level is Tenkan-sen line (0.7665).



On the daily chart Tenkan-sen line is below Kijun-sen, both lines are directed downwards. Confirmative line Chikou Span is below the price chart, current cloud is descending. The instrument is trading below Tenkan-sen and Kijun-sen lines; the Bearish trend is still strong. One of the previous minimums of Chikou Span line is expected to be a support level (0.7630). The closest resistance level is Tenkan-sen line (0.7710).



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.


 
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30 / 11 / 2017 | Market News

Fundamental Analysis 30.11.2017 - Market Outlook

GBP soared after the Times reported that negotiators are close to a breakthrough on the difficult problem of the Irish border. If the two sides agree, EU leaders reportedly could offer Britain a two-year transition arrangement as early as January 2018. The news triggered a lot of stops that pushed the currency higher. This would be bullish for sterling.

JPY on the other hand fell after outgoing US Federal Reserve Chair Janet Yellen and other Federal Reserve officials made it clear that the Federal Reserve is likely to hike in December 2017 and to continue raising rates. US 10-year yields rose about 6 bps yesterday, which helped to keep the dollar steady.

NZD was also weak after the ANZ confidence index fell to -39.3 in November 2017 from -10.3 in October 2017. This was the lowest since March 2009. The report was the first that was entirely done after the formation of the new Labour government and suggests that business is unhappy with the change in government. I think it’s overdone and the currency should recover in short order. 

Precious metals were lower as the dollar remained steady and US stocks and interest rates rose.

Today’s market

The day’s indicators actually start off with the German unemployment data, followed shortly by the EU-wide unemployment data. Neither of these are major market-moving events. The most widely watched figure among them is the change in unemployment in Germany, a sort of reverse nonfarm payrolls in that it shows the change in the number of people without jobs, rather than the number of people with jobs. Nonetheless these data don’t correlate closely with any subsequent market movement in EUR/USD.

On the other hand, the EU Consumer Price Index is one of the few EU-wide data series that does move EUR/USD. Following yesterday’s faster-than-expected growth in Germany’s Consumer Price Index, the market probably won’t be surprised if the EU-wide Consumer Price Index hits the consensus forecast for slightly higher inflation. The rise in inflation is partly due to higher energy costs. The result may be EUR-neutral.

The Organization of the Petroleum Exporting Countries meets today in Vienna. First there’s a meeting of just the Organization of the Petroleum Exporting Countries ministers, then about three hours later they’ll be joined by ministers from some 20 countries not in the Organization of the Petroleum Exporting Countries.

The Organization of the Petroleum Exporting Countries and Russia have agreed to cut production by 1.8mn b/d until the end of March 2018. The question is whether to renew this agreement and if so, for how long.  A joint committee of Organization of the Petroleum Exporting Countries members and non-members reportedly recommended on Tuesday 28th November 2017 extending it until the end of 2018 but with the option of reviewing the arrangement at the next Organization of the Petroleum Exporting Countries meeting in June 2018. In effect, that means the opposite:  a three-month extension with the option of continuing it until the end of the year.

The problem seems to be that Russia questions the wisdom of cutting back production when all that happens is US producers boost their output. US exports of crude oil, which previously were nothing much to talk about, recently approached 2mn b/d. Russia also wants the Organization of the Petroleum Exporting Countries to start discussing how they are going to end the quota system when they judge that the time is right. 

There’s also a discussion about whether to bring Nigeria and Libya into the production quota system. The two have been exempt so far.

I think an agreement to extend for nine months but with the option to review in June 2018 – leaving open the possibility that it’s only a three-month extension in fact – would disappoint investors. It would inject some uncertainty about supply into the market, which would probably push prices down. I therefore think it would be negative for oil prices and negative for CAD.

US personal income & personal spending are expected to be up only slightly. Spending in particular is expected to slow from September 2017, when it was boosted by people trying to recover from the hurricanes. The result may be mildly USD-negative.



Of more importance, in my view, is the personal consumption expenditure (PCE) deflator and particularly the core personal consumption expenditure deflator. That’s the definition that the Federal Reserve uses when it talks about its inflation target. The headline figure is expected to slow somewhat, but the core measure is forecast to accelerate a bit – a USD-positive development. 



My research shows that out of the four indicators released at the same time, the market pays the most attention to the core personal consumption expenditure deflator. So I would pay the most attention to that one. Of course, you should be watching not just the number, but how the number compares to the consensus. If the core personal consumption expenditure figure matches its consensus forecast but there is a big beat or miss among the other ones, then that could dominate the market reaction. 

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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29 / 11 / 2017 | Technical Analysis

Technical Analysis 29.11.2017 - EUR/JPY: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is crossing Kijun-sen from above, the red line is directed downwards, while the blue one remains horizontal. Confirmative line Chikou Span is approaching the price chart from above, current cloud is going to reverse from descending to ascending. The instrument has entered the cloud. The closest support level is the lower border of the cloud (131.96). The closest resistance level is Tenkan-sen line (132.13).



On the daily chart Tenkan-sen line is below Kijun-sen, the red line is directed downwards, while the blue one remains horizontal. Confirmative line Chikou Span is crossing the price chart from above, current cloud is ascending. The instrument has been corrected to the Tenkan-sen line. The closest support level is the lower border of the cloud (130.96). The closest resistance level is Tenkan-sen line (132.29).



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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29 / 11 / 2017 | Market News

Fundamental Analysis 29.11.2017 - Market Outlook

USD gained after the Senate tax bill made it out of committee and headed to the floor of the Senate for a vote on Thursday 30th November 2017. Two Republican members of the committee who had their doubts about the bill were persuaded to vote for it. US President Donald Trump was supposed to meet with the leaders of the Democrats and Republicans in Congress to hammer out some way to keep the government going after the money runs out on 8 December 2017, but before the meeting, US President Donald Trump tweeted “I don’t see a deal!”. As a result, the Democrats pulled out of the meeting and just met with their Republican counterparts.

Some investors interpreted this chain of events to be positive on the assumption that it’ll be easier for the Democrats to forge a deal with the Republican leaders than with US President Donald Trump, and so stocks and the dollar actually rose when the news broke. However, the T-bill market thought otherwise. The yield on the bill maturing 21 December 2017, i.e. after the shut-down would occur, hit a new high relative to the one maturing 7 December 2017. The difference indicates that investors in the T-bill market are taking the possibility of a government shutdown quite seriously. That should be negative for the dollar.

GBP gyrated on news reports, later denied, later confirmed, that the British government had reached a preliminary agreement on the financial settlement with the EU, the so-called “divorce bill”. It appears that the UK will agree to pay the EU what it wants. There are still hurdles to overcome as the UK has until Monday 4th December 2017 to figure out a similar way to finesse the Irish border problem. Nonetheless the fact that they caved in here and worked out a compromise makes me cautiously optimistic that perhaps they can work out some way to get around the seemingly intractable problem of the Irish border. I’m slightly positive on GBP for now as it looks like Britain realizes it has no bargaining power and is just looking for a way to cave in to EU demands.

North Korea fired a missile that landed within Japan’s economic zone, demonstrating that it could reach the US. JPY was little changed however as North Korea said that it had completed its nuclear testing program, which means less tension for now.

NZD was lower after the New Zealand government changed the laws to make it more difficult for overseas investors to buy rural land in the country. I’m actually somewhat bullish on NZD at the moment because of a change in Chinese laws on Friday 24th November 2017. China’s tariff on some kinds of infant formula were raised to 20% in 2008 after a tainted milk scandal, but were cut to zero, which should help New Zealand milk producers over the long run. So far, milk futures have hardly responded, but I think they should over the longer term, with positive implications for NZD. 

Oil was lower – and CAD with it – after the American Petroleum Institute (API) reported that inventories rose 1.82mn barrels in the latest week, in contrast to market expectations of a 3mn barrel decline. I expect that there will be some disappointment after tomorrow’s Organization of the Petroleum Exporting Countries meeting – expectations usually run ahead of reality -- and oil and CAD will decline further.

Today’s market

After many days of thin schedules, today is packed with indicators and events.

In Europe, the main event will be the Germany CPI. As usual, the day starts with the Saxony Consumer Price Index. There aren’t any forecasts for that, but it bears watching because it’s usually a good indicator of the Germany-wide Consumer Price Index (which in turn is a good indicator of the EU-wide Consumer Price Index). Starting in 2009, if the yoy rate of the Saxony Consumer Price Index rises or falls, the nationwide Consumer Price Index moves in the same direction 80% of the time. (The EU-wide Consumer Price Index follows Saxony 63% of the time.) 



The German Harmonized Index of Consumer Prices (HICP), which comes out later in the day, is forecast to show a substantial acceleration in inflation. This is probably due to higher energy prices. In any case, it should be encouraging for EUR bulls who are hoping that inflation will approach the European Central Bank’s target and should therefore be positive for the euro.



The Bank of England’s money supply data, including UK mortgage approvals, is next up. The market is looking for a 1.9% mom decline, in line with the 2.6% mom fall reported earlier by UK Finance, a consortium of banks. These two indicators have an 80% correlation. In this case, the Bank of England number would be slightly better than the UK Finance figure and so should be mildly GBP-positive.



US Q3 GDP is forecast to be revised up slightly on the second estimate. As you can see from the graph, this is quite normal in recent years – it’s been revised up seven out of the previous 10 quarters (down twice, unchanged once). That’s why I think there’s asymmetric risk in this number. A modest improvement is well in the price already and probably wouldn’t make for much of a move in USD. However, a downward revision would be a big surprise and would probably cause USD to fall sharply. 



US pending home sales are forecast to be up a robust 1.1% mom, a sharp turnaround from the six-month average of -0.8% mom. Although this is a volatile series, as the graph shows, the rise in October 2017 would be yet another sign of the strong US housing market. Total home sales (new + existing) were up 2.5% mom during the month (vs an average 0.9% fall each month in the previous six months), and house prices (as measured by the Case-Shiller's 20-City Composite index) surged  6.2% yoy in September 2017, the fastest pace of growth since July 2014. I wonder how much of this activity is due to the hurricanes. At the same time, it’s hard to see how existing home sales could rise because houses were destroyed, unless of course people from the affected area moved elsewhere. 



At the same time the housing data is coming out, Federal Reserve Chair Janet Yellen will address the Joint Economic Committee of Congress on the US economic outlook. It’s unlikely that she would say anything different than what she’s been saying up to now, but given that this is her last appearance as Federal Reserve Chair, she may be willing to give more of her own personal view rather than representing the consensus view of the Federal Open Market Committee. In any case, Janet Yellen is usually optimistic about the US economy and talks about raising rates gradually (as her likely successor, Jay Powell, did yesterday) and so I would expect her testimony to prove positive for the dollar.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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28 / 11 / 2017 | Technical Analysis

Technical Analysis 28.11.2017 - AUD/JPY: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is below Kijun-sen, the lines are horizontal . Confirmative line Chikou Span is below the price chart, current cloud is descending. The instrument is trading below Tenkan-sen and Kijun-sen lines; the Bearish trend is still strong. One of the previous minimums of Chikou Span line is expected to be a support level (84.220). The closest resistance level is Kijun-sen line (84.813).



On the daily chart Tenkan-sen line is below Kijun-sen, both lines are directed downwards. Confirmative line Chikou Span is below the price chart, current cloud is descending. The instrument is trading below Tenkan-sen and Kijun-sen lines; the Bearish trend is still strong. One of the previous minimums of Chikou Span line is expected to be a support level (84.000). The closest resistance level is Tenkan-sen line (85.196).



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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28 / 11 / 2017 | Market News

Fundamental Analysis 28.11.2017 - Market Outlook

The dollar was modestly higher overall as the market anticipates the Senate tax bill passing this week, possibly as early as Thursday 30th November 2017. The bill comes up for a vote in the Senate Budget Committee today, where one Republican member yesterday declared his opposition to the bill. If he votes against it, it won’t pass the committee and therefore can’t go to the entire Senate. The markets are also following Special Counsel Robert Mueller’s investigation into Russian meddling in last year’s election. It was reported yesterday that the lawyer for former national security adviser Michael Flynn met yesterday with members of Robert Mueller’s team.

The big move though was in NZD, which soared during the European trading day yesterday and continued to gain this morning in Asia. Investors are apparently selling AUD/NZD as Australian interest rates fall and the odds of a rate hike there decline (in addition to a fall in iron ore and copper prices). There may also have been some short-covering in the currency ahead of the month end.

CAD moved lower. There were no Canadian economic indicators out yesterday, so it was tracking the oil price lower. Oil was down as investors rethink some of their enthusiasm about Thursday 30th November 2017’s meeting of Organization of the Petroleum Exporting Countries members with countries who are not members of the Organization of the Petroleum Exporting Countries. With oil prices firming up, I don’t expect anything major to come of that meeting.

Today's Market

In Europe, the focus will be on whether the Irish government faces a vote of no confidence, and if it does, whether it will survive. At the time of writing the answers to those questions appear to be yes and no, respectively.

Irish politics are also a focus because the question of what to do about the Irish border with the UK is one of the main hurdles preventing Britain and the EU from starting negotiations on a post-Brexit trade agreement.

If there is a vote of no confidence and the Irish government falls, which seems likely, then the Irish Prime Minister may attend the crucial December EU summit meeting as a Prime Minister facing an election. That meeting has to ratify that sufficient progress has been made in the talks up to now, otherwise the negotiations won’t go onto the next stage.

If there is a vote of no confidence, the Irish Prime Minister's bargaining position could be weakened and the others might  find it easier to pressure him into agreeing to give Britain a pass. On the other hand, it could make him less likely to give Britain a pass, to boost his popularity back home ahead of the election.

There are also key political events this afternoon in the US. First, the Senate Budget Committee is scheduled to vote on the tax bill today, as mentioned above. So far, two Republican Senators have come out in opposition to the bill, and one of those two is on the Budget Committee. Aside from those two, there are at least seven other Republican Senators who are either undecided or leaning towards a “no.” Only three Republican “no” votes would sink the bill.

Secondly, US President Donald Trump meets with the heads of both parties from both the Senate and the House of Representatives to discuss federal spending plans. The US government will run out of money on or around 8th December 2017, so Congress has to pass some kind of spending plan before then. The problem is that even though Republicans have a majority in both houses, they probably can’t pass the necessary legislation on their own without any votes by the Democrats.

The Democrats are bound to hold out for significant concessions from the Republicans before agreeing to vote for a Republican spending plan. When almost the same thing happened last May, US President Donald Trump caved in to the Democrats’ demands, handing them a major victory. But later he appeared to regret the concession and tweeted, “our country needs a good ‘shutdown’.” Will he accede to the Democrats’ demands again, or opt for a shutdown this time rather than give ground? That would also be a significant negative for the dollar.

Aside from those events, three central banks release their Financial Stability Reports and have press conferences or some public statements from the central bank governor:  Britain, Canada and New Zealand (overnight). These statements can be the occasion for some market-moving comments by officials, so they should be monitored by people with positions in those currencies.

When the US comes in, the advance trade statistics and wholesale inventories will be released.

The forecast for the advance goods trade balance is almost exactly equal to the recent average (-$65.0bn, vs the six-month average of -$64.83bn) so if the figure comes in as expected, it will mean no change in the trend and therefore no change in USD is warranted.



Wholesale inventories come out at the same time but they have much less impact on the FX market than the trade data does. Here too, the market is simply expecting the current trend to continue, which would not be a market-moving development. 



Canada’s industrial product prices, the Canadian version of a producer price index, is expected to be up notably in October 2017. That would be a surprise, because recently this indicator has been trending lower. Prices did jump last October, but they actually fell in the previous three Octobers, so we can’t say there’s any seasonal pattern of rising prices in October. The absence of price pressures at the wholesale level could complicate the inflation picture for the Bank of Canada and lead to a lower Canadian dollar. 

The Senate Banking Committee will hold a hearing on the nominee for Federal Reserve Chair, Jay Powell. He’s well respected by people on both sides of the aisle so I don’t think there will be any problems with his nomination. It will be important just to hear what he has to say. Most of the time, nominees stress continuity from the outgoing Chair. That was also the impression from a statement to the Committee that Jay Powell released yesterday ahead of his testimony. He repeated the current Federal Reserve consensus on monetary and regulatory policy and defended the unique structure of the Federal Reserve.

There is a debate going on in the Federal Reserve about whether to lower the inflation target in acknowledgement that inflation is probably going to be lower from now on. That would make it easier for them to hike rates now, and so have room to lower them when the next recession comes along. He may also get some questions on using mathematical rules rather than human discretion to set rates. And finally, there’s the question of what the Federal Open Market Committee really thinks about inflation.

The Conference Board consumer confidence index is expected to show only a small drop in confidence. This would be a 1.5% decline, comparable to the 2.2% decline in the already-released University of Michigan survey and therefore not much of a surprise to the market. If it comes out as expected, I doubt if it will move the markets much. 



The Richmond Federal Reserve manufacturing survey is forecast to rise somewhat, which would be a big surprise after yesterday’s plunge in the Dallas Federal Reserve manufacturing survey. In fact, all the other Federal Reserve surveys have fallen this month, so even if this one rises a bit, I don’t think it would change anyone’s view on the US economy. 



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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27 / 11 / 2017 | Technical Analysis

Technical Analysis 27.11.2017 - AUD/CAD: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is above Kijun-sen, the red line is directed downwards, while the blue one remains horizontal. Confirmative line Chikou Span is crossing the price chart from above, current cloud has reversed from descending to ascending. The instrument has entered the cloud. The closest support level is the lower border of the cloud (0.9655). The closest resistance level is the lower border of the cloud (0.9700).



On the daily chart Tenkan-sen line is below Kijun-sen, the red line is directed downwards, while the blue one remains horizontal. Confirmative line Chikou Span is below the price chart, current cloud is descending. The instrument has been corrected to the Tenkan-sen line. One of the previous minimums of Chikou Span line is expected to be a support level (0.9650). The closest resistance level is Kijun-sen line (0.9760).



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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27 / 11 / 2017 | Market News

Fundamental Analysis 27.11.2017 - Market Outlook

The dollar is starting out the week broadly lower against most major currencies. However, most of the move took place on Friday 24th November 2017. In fact the dollar has been recovering somewhat this morning in Asia.

There doesn’t seem to be any particular reason for the reversal in the weak dollar trend; on the contrary, the reasons for the dollar to weaken and euro to strengthen remain in place, namely the questions surrounding US tax reform vs the increasing likelihood of a resolution to the German political stalemate.

GBP is higher vs the weak USD, but down against EUR. On Friday 24th November 2017, European Council President Donald Tusk said the UK faced “huge challenges” in meeting the deadline to prove that there had been “sufficient progress” in the talks so far to move onto the next stage. Donald Tusk said the UK government had only 10 days left.

JPY was gaining vs USD even as the dollar recovered somewhat on comments over the weekend from Bank of Japan Policy Board Member Hitoshi Suzuki, who said the Bank of Japan might make slight changes to its yield curve control program when inflation approaches the Bank of Japan’s 2% target. Coming after similar comments by other Bank of Japan officials, investors are beginning to sense that the Bank of Japan is preparing the market for a reduction in its monetary accommodation even if they don’t achieve the 2% target. Fears that the Bank of Japan will start withdrawing stimulus, plus the general “risk off” environment, are likely to keep JPY on a firm trend today.

AUD and NZD were both lower, probably as a result of the firming yen – investors apparently bought yen against these currencies. The general “risk off” environment may also have helped to depress the commodity currencies.

Today’s market

An unusually slow start to the week. There’s nothing notable on the schedule in Europe this morning. Attention therefore is likely to focus on the possibility of the Social Democrats (SPD) returning to a coalition with German Chancellor Merkel’s Christian Democratic Union (CDU) party. The two parties will meet together with the Christian Democratic Union’s sister party, the Christian Social Union (CSU), on Thursday 30th November 2017. The possibility that the Social Democrats could reconsider their decision to leave the coalition would tend to be positive for the euro.

Later in the day, the figures on US new home sales will be reported.



The Dallas Fed manufacturing index is forecast to fall. That would be in line with what happened on average to the Empire, Philadelphia and Kansas City Fed surveys. Not to mention that it’s likely business in Texas is still disrupted by the hurricanes and floods.



The Commitment of Traders report, which usually comes out on Friday evening New York time, will come out today instead because of the Thanksgiving holiday. 

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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27 / 11 / 2017 | Market Outlook

Marshall Gittler's Market Outlook 27.11.2017-1.12.2017

Themes of the week: Robert Mueller's investigation, German and Irish politics, CPI Indicators



 



The market outlook video is provided by STO’s external service provider Marshall Gittler. Any views and opinions expressed are explicitly those of the video’s broadcaster. Any information contained in the video, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
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24 / 11 / 2017 | Technical Analysis

Technical Analysis 24.11.2017 - AUD/JPY: Ichimoku clouds

Let's look at the four-hour chart. Tenkan-sen line is below Kijun-sen, the lines are horizontal . Confirmative line Chikou Span is approaching the price chart from below, current cloud is descending. The instrument has broken through Tenkan-sen and Kijun-sen lines. The closest support level is Kijun-sen line (84.90). The closest resistance level is the upper border of the cloud (85.03).



On the daily chart Tenkan-sen line is below Kijun-sen, the red line is directed downwards, while the blue one remains horizontal. Confirmative line Chikou Span is below the price chart, current cloud is descending. The instrument is trading below Tenkan-sen and Kijun-sen lines; the Bearish trend is still strong. One of the previous minimums of Chikou Span line is expected to be a support level (84.67). The closest resistance level is Tenkan-sen line (85.78).



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
 
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