Mixed NFP But Higher Wages

Post date: Friday, October 07 , 2016 - 13:34 UTC
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  • US Economy adds 156K new jobs / Estimates were at 175K in September
  • Private Payrolls created 167K jobs / Estimates were at 170K in September
  • The Unemployment Rate ticked higher to 5.0% as the Participation Rate advanced to 62.9%
  • YoY Wages soared to 2.6%, while MoM increased by 0.2% vs. 0.3% estimated
  • USD is lower across the board.

Despite the fact that the Federal Reserve is looking for higher wage growth which was achieved today, the US Dollar is still declining across the board so far.

 

The unemployment rate ticked higher again for the second time this year, rising to 5.0% after touching 4.7% in May. This is the highest since April. However, this has been driven by the participation rate which advanced to 62.9% up from 62.8%, which represents the highest level since March.

 

The question here is, when confidence towards the company is rising, people will probably rush back into the labour force, which should in return lead to a lower unemployment rate. This would only occur IF the economy is truly growing and able to cover the new workers. However, it seems that this is not the case in the US. I will be watching the participation rate very carefully during the next few months.

 

Ever since the financial crisis, I have been saying that the decline in the unemployment rate is driven by lower participation rate because workers are leaving the labour force. But now, things are about to change. A rising participation rate will allow the unemployment rate to rise again. If this continues over the coming months, it will show the truth behind the health of the US economy.

 

As for the US Dollar, I would prefer to wait for the NYSE opening bell before entering any trade.

Attachments

US Participation Rate vs. Unemployment Rate

Strongest / Weakest Currencies (European Session)

Post date: Tuesday, October 04 , 2016 - 09:47 UTC
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Brexit Fears Fading?

Post date: Monday, October 03 , 2016 - 09:14 UTC
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Since the Brexit vote, almost everyone in the market anticipated a quick recession in the UK and expected the economy to suffer from a notable downturn. Of course, we saw some weakening in economic activity. However, it seems that fears are gradually fading, at least for now.

 

Today’s Manufacturing PMI came in contrary to market expectations, showing a notable rise to the highest level since November of last year. It rose to 55.4 in September up from 53.3, despite the fact that the estimates pointed to a decline back to 52.1.

 

New Orders advanced to 56.8 up from 55.0, while exports posted the highest reading since January of 2015. This is good news for Q3 GDP.

 

Despite the positive news, the British Pound remains the weakest currency for the day so far. Moreover, this doesn’t change the general bearish outlook. Selling rallies remain the favorable strategy for the time being. GBPUSD is likely to remain below 1.30 and 1.28 might be the next level to watch.

 

Strongest / Weakest Currencies During the European Session 

 

 

 

Bluffing Continues: Fed Left Rates Unchanged

Post date: Wednesday, September 21 , 2016 - 18:24 UTC
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So it has been almost a year since the Federal Reserve said that it will raise rates 4 times this year; it’s the end of September and the Fed has done nothing.

 

The Federal Reserve's statement mentioned that according to dot plots, there is still a possibility for raising rates in December. However, we must keep in mind that the dot plots only represent mere estimates.

 

Since December of last year, I have been saying that the Federal Reserve cannot afford to raise rates twice in a year. However, from now until December of this year, the weather excuse will be back on the table, and the the Federal Reserve will therefore use it as a reason not to raise rates in December as well.

 

You cannot tighten your policy while the rest of the world is easing. 

 

Traders should be very careful when Yellen speaks in few. 

 

All Eyes on Super Mario Again

Post date: Thursday, September 08 , 2016 - 08:29 UTC
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Despite the fact that most economists are looking for no change from the ECB today, Mario Draghi’s press conference is what matters to the markets. Draghi might be in the middle of two rocks. Growth has slowed, but inflation ticked higher. Moreover, the Euro has remained strong above 1.09 since March. 

 

Yet, after Brexit and the Bank of England's recent decisions, the ECB might consider to hint for further measures ahead. Mario Draghi might hint to extend the current QE beyond March of next year, which in return should keep the Euro within the same range of 1.14 – 1.09. Equities, on the other hand, may push higher. 

 

However, Mario Draghi might also surprise the markets with a very balanced tone along with no action or just mere hints for an action. This would be a disappointment for equities, especially DAX which may lose yesterday’s gains. On the other hand, the Euro might end the day above 1.13.

 

Crude Jumps On Hopes | UK Data Boosts GBP

Post date: Monday, September 05 , 2016 - 11:08 UTC
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Crude Rally May Fade

 

Earlier today, Saudi Arabia and Russia announced a joint press conference at 09:30 GMT+ time and declared that it will hold a “significant announcement”. This has led to a notable spike in Brent and WTI by more than 5% and that is primarily because hopes were rising for a significant deal announcement.

 

However, they surprised us with nothing. They agreed to hold more talks and have higher coordination while monitoring prices. They also announced that a working group will meet in Moscow this October. That was all. Such remarks have led prices to cool down again. WTI and Brent are now higher by 2.5% instead of 5%, losing 50% of the initial spike. In the meantime, today’s rally may fade towards the end of the day as no significant decision has been taken. Hopes for a production freeze might not last for long.

 

UK Services PMI Expands in August

 

Surprisingly, the UK Services PMI came in much better than expected, rising by more than expected and reaching the highest level in three months at 52.9 in August up from 47.6. This is some good news for the Bank of England and confidence in this sector is underway. 

 

GBPUSD Jumps Above 1.3350

  

The British Pound spiked following the Services PMI announcement, reaching as high as 1.3370’s but it couldn’t hold for long before retreating back to 1.3320’s so far. Yet, the British Pound is considered the third strongest currency today after the Japanese Yen and the Canadian Dollar. However, today’s high at 1.3376 is considered a notable resistance area. A failure to break above that resistance may resume the downward pressure later.

 

Attachments

GBPUSD Daily

Mixed Chinese Data | Busy Day Ahead

Post date: Friday, July 15 , 2016 - 08:55 UTC
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USDX Remains Below 200 Day MA

 

Beginning with the US Dollar Index, as expected the index failed again to break above its 200 DAY MA for the past few days, leading to another leg lower back to the 96.0 support area, which should be watched very carefully over the next few days. The index is now trading within a tight range between its solid resistance area at its 200 DAY MA at 96.55 and 96.0 solid support. Moreover, the technical indicators have crossed over to the downside, which maintains the bearish outlook in the short term unless the index breaks above that MA. By then the index may see another short term rally back to 97.0 areas.

 

Bank of England Surprise & FTSE100

 

The major event yesterday was from the UK, where the Bank of England surprised the majority of markets by keeping the current policy unchanged, despite the fact that more than 80% of economists were looking for a rate cut. This decision to many was disappointing, leading to a notable drop in FTSE100, which eased back all the way to 6650, forming a bearish shooting star, right from its 76.4% Fibo, while technical indicators are heavily overbought and have crossed over to the downside. This could suggest a possible retracement later today and may retest 6625, perhaps even 6500.

 

GBPUSD Nearing Key Resistance

 

The British Pound spiked all the way back to 1.3481 in Asia while it was trading around 1.31 before the Bank of England decision. However, the Bank of England noted that easing policy is likely to happen in August and consequently, the British Pound rally may be short lived and likely to prove a positive opportunity for short sellers. The next immediate resistance stands at 1.35. followed by 1.3534, which is likely to hold.

 

Gold Profit Taking Continues

 

Looking quickly at Gold, the downside retracement continued over the last few days, declining all the way back to $1320, which is the first support area. However, the downside retracement due to profit taking may continue to 1311 where buyers are likely to appear.  With technical indicators approaching the oversold area, the downside retracement is likely to be limited from now onwards.

 

China’s Mixed Data

 

In Asia today, Chinese data was mixed but mostly positive.  GDP remained stable at 6.7% while the estimates were to slow down to 6.6%. This is the weakest growth rate since 2009. Industrial production showed a notable rise,and contrary to the market estimates, rose to 6.2% which is the biggest YoY increase since March of this year. Even retail sales showed a notable rise, increasing by 10.6%, which is also the biggest increase since December of last year. These figures were enough to boost the Asian equities today in the Nikkei, Hangseng and Shanghai Composite Index.

 

Eyes on EU Final Inflation Readings

 

In the day ahead, there are many economic releases and events set to have a notable impact on the markets.

 

In Europe eyes will be on the final reading of the Euro Zone inflation figures, which may come in unrevised. The Euro is showing some strength given the fact that it is trading above its 200 DAY MAA. The current rally, however, is likely to remain limited given the fact that the pair has broken its up trend line following the referendum results. During the same session in Europe, Mark Carney is due to speak about climate change and the financial markets in Toronto, where he may comment on monetary policy. This could have an impact on the markets, especially if he keeps the door open for easing in August.

 

US Awaits Key Data Today

 

In the US session we will be waiting for US inflation data, including Core CPI and the CPI. In addition, Retail Sales, Core Retail Sales, Empire State Manufacturing Index, Capacity Utilization Rate, Industrial Production and the  UoM Consumer Sentiment Index will all be released today, which are likely to have a notable impact on the markets, especially if they come in with notable improvement.

 

Attachments

USD Index - Daily FTSE100 - Daily GBPUSD - Daily Gold - Daily China GDP YoY China Industrial Production YoY China Retail Sales YoY EURUSD - Daily

Lack Of Fundamentals With High Volatility

Post date: Tuesday, July 12 , 2016 - 11:37 UTC
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Despite the limited number of economic releases so far this week, market volatility remains on the rise in what can likely be attributed to hopes of further stimulus measures from the Bank of Japan later today and the Bank of England as early as next week. This has kept global equities higher since the beginning of the week and Nikkei 225 has added more than 8% in two days, and USDJPY is trading now above 103.50’s.

 

 

Bernanke Meeting Abe

 

Former Federal Reserve Chairman Ben Bernanke is in Tokyo today and will meet the Japanese PM today at 13:00 local time.  This could potentially be an advisory visit, and speculation is abound Bernanke’s involvement in a potential stimulus package. 

 

Watch The Size Of The Stimulus Package

 

The level of stimulus package from the Japanese could be a game changer for the Yen and Nikkei 225. Further QE could mean further weakness in currencies and another rally in stocks, which is already happening. Should the level of QE come in less than market estimates, the Nikkei 225 could turn around and may trim  recent gains.

 

GBPUSD Above 1.31, For How Long?

 

The British Pound has stabilized above 1.30 again, reaching as high as 1.3070’s. This is most likely attributable to news of Theresa May’s nomination as the new Conservative Party Leader and Prime Minister-in-waiting.  It is likely, however, that these gains will be short lived and limited.

 

The Bank of England is expected to ease its policy as early as next week, which in return is likely to maintain pressure on GBP pairs. From a technical analysis point of view, the technical indicators are heavily overbought. Moreover, the pair is nearing its short term down trend line which stands around 1.3150’s, which is likely to hold over the coming days. On the downside view, testing 1.30 is highly likely, while stabilization below that support could clear the way for further declines to a new 31 year low. However, a catalyst is still needed, which could potentially be the upcoming BoE decision.

 

EURUSD Testing Resistance

 

 

The Euro managed to stabilize well above 1.10 since the beginning of the month, with no clear break below that solid psychological support, leading to a notable rise all the way back above 1.11. In the meantime, 1.1116 represents the 61.8% Fibo retracement of the recent decline seen this month, which remains a solid resistance so far. As long as the Euro stays below that resistance, another leg lower would be very likely. Only a break above 1.1190’s would change the current bearish outlook.

 

Attachments

USDJPY - 4 Hours GBPUSD - 4 Hours

Yen Declining, Equities Rising While USD Stabilizes

Post date: Monday, July 11 , 2016 - 13:38 UTC
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Japan to Announce Further Stimulus

 

The Japanese Yen has tumbled so far this week, declining by an average of 1.9% against each currency. This is on the back of reports that Japan PM Shinzo Abe is set to order new economic stimulus on July 12th, while considering additional JGB issuance. If the reports are indeed true, this would be a game changer for the Japanese Yen and Nikkei 225, depending on the size of the stimulus package.

 

US Jobs Report Did Not Change Short Term Expectations

 

Despite the sharp increase in NFP on Friday which came in with more than 280K new jobs, market expectations in the short term do not appear to have changed. The Fed Fund Futures is not pricing in any rate hike until at least September of next year, and an only 4% chance of a rate hike in July. This comes on the back of slower wages growth and a higher unemployment rate, which edged higher from 4.7% to 4.9% as the participation rate advanced further.

 

Gold Breaks Long Term Down Trend-line

 

Gold prices managed to stabilize at the end of the U.S. session, closing last week’s trading above its major long term down trend line, which confirms a new bullish signal in the short and long term. However, the bullish signal will be under evaluation in the coming days as gold may retest the broken trend, which stands at $1358. A stabilization above that support may clear the way for further gains ahead, likely to a new high this year. Otherwise, another short-term retracement could be seen, perhaps toward $1340’s and/or $1320’s.

 

Pound Hovering Around 1.30

 

The British Pound is still hovering around the 1.30 psychological level in the last few days, with no clear break above or below that level. Such a fluctuation comes on the back of uncertainty towards the Bank of England’s upcoming meeting, in addition to the prospects of the upcoming election in October. The possibility of a rate cut by the BOE is very high at around 78%. However the BoE may not only cut the rates, but increase the asset purchases facility. If this happens next week, then GBPUSD may head towards 1.25 in the coming weeks.

 

Attachments

Gold - Weekly

Safe Haven Assets Rising, Equities Falling & Pound Below 1.30

Post date: Wednesday, July 06 , 2016 - 09:13 UTC
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Gold Above Long Term Trend Line

 

Beginning again with the assets to watch, Gold and Silver continued to rise overnight, breaking significant levels. This is especially the case for Gold, which is trading above its major long term down trend-line for the first time since 2012, rising to the highest level since March of 2014 at $1371. However, and despite the breakout, a confirmation is still needed, which would be a weekly close above $1358. Otherwise, the risk of a fake breakout is here to stay.

 

Silver Above $20

 

Silver managed to recover above $20 but remained below this week’s highs, trading around $20.50’s. The immediate resistance remains at this week’s highs around $21.20. The bullish outlook remains unchanged  as long as it stays above $18.90’s.

 

GBP Below 1.30 As Rate Cut Chances At Record High

 

Another interesting move overnight for the British Pound, which lost another 1.5% since yesterday, declining all the way to a 31 year low, reaching as low as 1.2798. In the meantime, with a weekly close below 1.30, this could put the pound at risk to lose further ground over the next few weeks as traders continue to price in further measures by the Bank of England. The future market is pricing in a 76.7% chance for a rate cut by the BoE next week on 14th of July, which could explain why the pound is declining sharply. We maintain our bearish outlook with the same potential target at 1.25 before the yearend.

 

Equities Falling Except FTSE100

 

As we outlined in our first post-Brexit article, global equities could not hold on to its temporary gains and declined back since the beginning of the week, with the notable exception of the FTSE100 in the UK. Falling equities come on the back of further uncertainty towards global growth following the referendum results, rising tensions towards Italian banks, and the fact that central banks have not intervened in the market. The FTSE 100 is stabilizing and even gaining slightly on hopes for further measures by the BoE soon. 6,600 might still be tested in the coming days in FTSE100.

 

Aussie Below 0.75

 

The Aussie also continued declining again in line with our expectations, as the RBA kept the door open for further rate cuts in the coming meetings. The Aussie is negative on the week again, but its still trading above its Moving Averages which should be watched very carefully. However, technical indicators are showing a lower low pattern which keep the bearish outlook unchanged. The next immediate support stands at 0.7379 which represents its 50 DAY MA.

 

Few Economic Releases Ahead

 

Today there are only few economic figures expected to be released throughout the day, which may have a slight impact on the markets.

 

Beginning in Europe, eyes will be on German Factory Orders, EU retail Price Index and the ECB President Draghi, who is due to deliver opening remarks at the 8th ECB statistics conference in Frankfurt.

 

In the US session, eyes will turn to Canada’s Trade Balance, US Trade Balance, US ISM Manufacturing PMI and finally the FOMC Meeting Minutes.

 

FOMC Meeting Minutes Might Be Non-Event

 

The FOMC meeting minutes may be a non-event, as these are the minutes of the meeting held just before the UK referendum. Therefore, the potential impact of a hawkish or a dovish tone is likely to be limited and/or short lived.

 

Attachments

Gold - Weekly Gold Daily Silver - Daily AUDUSD Daily

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