Forex research

US Opening Call from Alpari UK on 13 May 2013

Payroll tax to weigh on US retail sales

Today’s US opening call provides an update on:

* Disappointing Chinese data weighs on European stocks;
* Italy completes successful debt auction;
* US retail sales in focus this afternoon.

European indices are in the red across the board on Monday, putting an end to a four day winning streak, after the release of some disappointing Chinese data.

The Chinese figures this morning weren’t the end of the world, they were only marginally below market expectations. However, we’ve just had a four-day winning streak in most European indices, so investors will have been looking for an excuse to lock in profits. Now, as it has been for months now, it’s just going to be a case of waiting for the next dip before we see more buying.

Chinese retail sales were in line with expectations of a 12.8% increase, but this is still a fair way below the increases that we were seeing last year. When you combine that with below forecast industrial production and fixed asset investment, it’s no surprise that we had the reaction that we did. It’s not an encouraging sign.

The Chinese data has completely overshadowed the Italian bond auction this morning, which saw three-year yields at the auction come in at their lowest since January. Italy managed to raise its maximum target of EUR8 billion at the auction which also came with strong demand.

I think this largely reflects investors relief at the fact that we now have a grand coalition in place, even if many are sceptical about how long it can last. The progress that we’re seeing here may be slow, but it’s better than what we had in the two months following the election.

Next up we have US retail sales shortly before the opening bell. Consumers spending has been surprisingly strong so far this year, despite the increase in the payroll tax. This may be due to the drop in energy prices though, which will go some way to easing the pressure on people’s disposable income.

Now that we’re seeing energy prices rising again, with WTI crude up almost 10% in the last month, we could see consumers really feel the squeeze. This should be seen in the retail sales figures in the coming months, although I doubt we’ll see it in April’s figure this afternoon.

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UK Opening Call from Alpari UK on 14 May 2013

Eurozone data to highlight need for more ECB action

Today’s UK opening call provides an update on:

• S&P hits record highs after retail sales exceed expectations;
• Eurozone and German ZEW figures expected to improve in May;
• Further disinflation in the eurozone may prompt another ECB rate cut.

European indices are expected to open marginally higher on Tuesday, boosted by better than expected US retail sales on Monday.

The S&P closed at record highs once again following the release of the retail sales figure, which showed a small increase of 0.1%, against expectations of a 0.3% drop in April. While I still expect to see these figures come down in the months ahead as a result of rising energy prices and the impact of the payroll tax on disposable income, it’s good to see that consumers have thus far been unaffected, to an extent, by the tax hike which came into effect on 1 January.

There’s likely to be a lot more focus on economic data this week, although this will pick up more and more as the week goes on. We’ve had a few pieces of data out so far, but as always, the bigger figures are saved for later in the week, with Wednesday bringing GDP figures for the eurozone and unemployment data for the UK.

The ZEW economic sentiment surveys for the eurozone and Germany will be watched closely this morning, after both came in significantly below market expectations last month. Expectations this month are for a small improvement in both of these figures, with the eurozone rising to 27.3 and Germany to 39.5.

The improvement in both of these is likely due to a combination of the ECB rate cut earlier this month and the formation of the coalition government in Italy that ended two months of political uncertainty. In reality, very little has actually changed, in that the data hasn’t improved, the rate cut is unlikely to have any positive impact whatsoever on the real economy and people appear no more optimistic about the eurozone than they did a month ago. As a result, we may well be setting ourselves up for disappointment once again.

Another focus in the eurozone today will be the inflation data out of Germany, Spain and Italy. Given the ECBs focus on price stability, the ZEW data is unlikely to have an impact on the rate decision next month, however these CPI figures could. It is worth noting that these figures are for April, so will be impacted in no way by the rate decision earlier this month. That said, if we see more signs of disinflation in these countries, it may suggest that a 25 basis point cut is not enough and therefore prompt a second consecutive rate cut in June, something ECB Governor Mario Draghi is no stranger to.

EURUSD

While this pair still looks bearish in the longer term, with the next target being 1.28, it looks like we could see a push higher in the shorter term, with the pair retesting the neckline of the double top formation, that it broke below on Friday. There are a few bullish signals on the daily chart alone, for example the doji candlestick yesterday suggests we could see a reversal of the recent downtrend. The fact that this has been followed by a strong rally in the euro means we could see a morning star form, as long as today’s green candle is at least two thirds the size of Friday’s red candle. On top of that, both the RSI and stochastic are now pointing higher which suggests the pair is looking more bullish. On the other hand, the pair has found clear resistance over the last couple of days from the 50 and 200 day SMAs, around 1.30, which is also a key psychological level. If we continue to see that today, it could mark the end of the rally already and prompt the continuation of the downtrend.
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GBPUSD

The pound has turned quite bearish again, after the pair broke below the ascending channel yesterday. We are seeing it trade higher again this morning, however this could only be a temporary retracement of the longer term downtrend. We could now see the pair test the bottom of the channel as a new level of resistance before continuing its move lower. If the pair does turn bearish, it should find support around 1.5250, from the 50 day SMA. Below here is should find additional support around 1.5230 and 1.52. On the weekly chart, you can see that the pair actually formed a perfect flag formation, which it has now broken below. Based on the size of the flag, we should now see a move back towards 1.5040, although I think it could fall back to 1.4830 in the coming months.
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USDJPY

The dollar is paring some of its recent gains against the yen this morning, following a strong rally that saw it push above 100.0 before finding resistance around 102. I still think there’s a long way to go in this pair, with 110 being the next major target. As a result, I think today’s selling is merely a retracement rather than a trend reversal. As always, the Fibonacci retracement levels tend to give a good idea about how far we can expect the pair to retrace. The one that stands out for me is the 61.8 fib level, given that it’s within a few pips of 100, which was previously a major level of resistance.
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US Opening Call from Alpari UK on 14 May 2013

Eurozone data to highlight need for more ECB action

Today’s UK opening call provides an update on:

* S&P hits record highs after retail sales exceed expectations;
* Eurozone and German ZEW figures expected to improve in May;
* Further disinflation in the eurozone may prompt another ECB rate cut.

European indices are expected to open marginally higher on Tuesday, boosted by better than expected US retail sales on Monday.

The S&P closed at record highs once again following the release of the retail sales figure, which showed a small increase of 0.1%, against expectations of a 0.3% drop in April. While I still expect to see these figures come down in the months ahead as a result of rising energy prices and the impact of the payroll tax on disposable income, it’s good to see that consumers have thus far been unaffected, to an extent, by the tax hike which came into effect on 1 January.

There’s likely to be a lot more focus on economic data this week, although this will pick up more and more as the week goes on. We’ve had a few pieces of data out so far, but as always, the bigger figures are saved for later in the week, with Wednesday bringing GDP figures for the eurozone and unemployment data for the UK.

The ZEW economic sentiment surveys for the eurozone and Germany will be watched closely this morning, after both came in significantly below market expectations last month. Expectations this month are for a small improvement in both of these figures, with the eurozone rising to 27.3 and Germany to 39.5.

The improvement in both of these is likely due to a combination of the ECB rate cut earlier this month and the formation of the coalition government in Italy that ended two months of political uncertainty. In reality, very little has actually changed, in that the data hasn’t improved, the rate cut is unlikely to have any positive impact whatsoever on the real economy and people appear no more optimistic about the eurozone than they did a month ago. As a result, we may well be setting ourselves up for disappointment once again.

Another focus in the eurozone today will be the inflation data out of Germany, Spain and Italy. Given the ECBs focus on price stability, the ZEW data is unlikely to have an impact on the rate decision next month, however these CPI figures could. It is worth noting that these figures are for April, so will be impacted in no way by the rate decision earlier this month. That said, if we see more signs of disinflation in these countries, it may suggest that a 25 basis point cut is not enough and therefore prompt a second consecutive rate cut in June, something ECB Governor Mario Draghi is no stranger to.

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UK Opening Call from Alpari UK on 15 May 2013

Eurozone GDP and UK unemployment in focus today

Today’s UK opening call provides an update on:

• Eurozone expected to remain in recession;
• France to enter recession in the first quarter;
• UK jobless claims to fall for sixth consecutive month, while wage growth remains an issue;
• Sir Mervyn King to hold one of his final press conferences as BoE Governor.

European stock indices are expected to open higher on Wednesday, ahead of the release of eurozone GDP figures and UK unemployment data.

Data released this morning is expected to confirm that the eurozone remained in recession in the first quarter, after contracting by 0.1%. The fact that only a marginal contraction is expected means we could actually see the eurozone move out of recession, with no or a small amount of growth, which would undoubtedly prompt a very positive reaction in European stocks and the euro.

That said, I think it’s far more likely that the contraction will be bigger than is currently forecast, meaning the eurozone is actually deeper in recession than we thought. While some of the recent German data has been encouraging, the same can’t be said of that from most of the other eurozone countries. Therefore, anything other than a contraction figure here is extremely unlikely.

We also have many individual eurozone countries releasing GDP figures throughout the morning, although we’re unlikely to see many surprises here. The German figure has the potential to surprise to the upside, after what was in the main, a pretty good quarter for the country, under the circumstances. I think growth expectations of 0.3% may be overly conservative here, especially following a 0.6% contraction. I’ll be very surprised if this doesn’t come in above market expectations, providing a boost early in the session.

I don’t see the other figures giving us too much to be optimistic about. France is expected to be confirmed as back in recession after a woeful first quarter. Expectations are for growth of around -0.1%, which could actually prove to be overly optimistic given the rest of the data we saw in the first three months of the year. Meanwhile, Italy, Greece and Portugal are expected to remain deep in recession, with little hope of returning to growth this year.

In the UK, unemployment is expected to remain at 7.9%, while the number of jobless claims are expected to fall for the sixth consecutive month. Despite being much higher than pre-financial crisis levels, the unemployment rate in the UK isn’t actually too bad, especially when compared to many of the countries in the eurozone. One of the biggest concerns in the UK at the minute is real incomes which are being hit by high inflation and minimal wage increases. Data released this morning is expected to show this is still the case, with average earnings growing only 0.7% in the last three months, compared to a year ago.

Sir Mervyn King will make one of his final appearances as Bank of England Governor, when he holds a press conference with other MPC members later on this morning. At the same time, the BoE inflation report will be released. This is unlikely to fill us with optimism about the outlook for the UK, despite seeing some promising signs as of late.

These projections have proven to be incredibly inaccurate over the last few years so you should really take them with a pinch of salt. On top of that, we have a new BoE Governor starting in July, which will probably change the inflation projections entirely, depending on how the central bank addresses the issue of low growth and high inflation. The press conference is likely to be used as an opportunity to find out how the voting went at the last meeting, with King so far being unable to convince the other policy makers to vote in favour of an additional GBP25 billion of asset purchases, probably due to the fact that he retires after the next meeting.

Later on in the US, the focus is likely to remain on economic data, with the empire state manufacturing index and industrial production figures attracting particular attention. We also have crude oil inventories out later, which are expected to rise slightly to 0.5 million.

EURUSD

The euro failed again yesterday to close back above 1.30 and the 200-day SMA. The fact that we’ve now had two failed attempts to close above here since breaking below goes some way to supporting the bearish outlook for this pair, at least in the short term. The next target for me is still around 1.28, due to the size of the double top that the pair broke below on Friday. This is a major level for the pair, as it is the neckline of the head and shoulders which has formed over the last eight months. If we see a break here, it could prompt a move back towards 1.18, based on the size of the formation. Alternatively, we could see this act as support, prompting a move higher. If the pair does continue to slide, it should find support around 1.2910, 1.2876, 1.2863 and 1.2843. If it continues to edge higher, the next resistance levels should come around 1.2954, 1.2988 and 1.30.
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GBPUSD

Sterling is continuing to slide against the dollar, since bouncing off the 50 fib level earlier this month. Since then, the pair has broken below the middle bollinger band last week, followed by the ascending channel on Monday. Yesterday, the pair closed below the 50-day SMA for the first time since breaking above it back at the start of April, which only added to the bearish outlook for the pound. The pair is trading slightly higher this morning, although I don’t expect it to gain any real momentum. We could see it test the 50-day SMA as a new level of resistance before continuing to head south. What we now have on the weekly chart is a textbook flag formation, which again supports the bearish outlook, especially since it broke below the flag. Now that the pair appears to have broken those big support levels around 1.53, I see no reason why it won’t target this year’s lows of 1.4830, finding support along the way around 1.52, 1.5088, 1.5030 and 1.50.
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USDJPY

The dollar is continuing to push higher against the yen this morning. The rally in the pair, since breaking above 100, doesn’t appear to be running out of steam, which is surprising since it’s currently trading above a level that was previously a major level of support. That suggests we could see it reach 105.57, the 61.8 fib level, earlier than expected. That said, I would be very surprised if we don’t have a significant pull back before then. The pair is currently finding resistance around 102.60, a previous support level, with the next big resistance level being around 103.75.
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US Opening Call from Alpari UK on 15 May 2013

European indices higher despite deeper eurozone recession

Today’s US opening call provides an update on:

* Eurozone remains in recession after larger than expected contraction in Q1;
* Italy in longest recession since records began;
* UK unemployment falls to 7.8% in March;
* US focus remains on economic data on Wednesday.

European indices are trading slightly higher across the board this morning, despite falling earlier after first quarter growth figures came in below market expectations.

I don’t think anyone was really expecting much from these figures this morning, given the rest of the data we’ve seen over the last few months. However, they may have been a bit of a wake-up call to those who still believe that the eurozone can pull out of recession this year, given that most fell below forecasts, with France being confirmed as in recession and Italy in its worst recession since records began.

The interesting thing about these figures is that once again we’ve seen selling in the immediate aftermath of the release, followed shortly after by bargain hunters buying on the dips. Instances like this make it very difficult to be bearish at the moment, with investors clearly showing that they couldn’t care less about the data. Poor data is merely a buying opportunity.

Things are looking much better for the UK, after data showed the unemployment rate falling back to 7.8% in the three months to March, while the number of people processing jobless claims fell by 7,300 during the same period. This in just the latest in a long list of improvements in UK economic data, which has made life very difficult for Sir Mervyn King when trying to convince the other policy makers to boost its asset purchases by another £25 billion.

Another thing which hasn’t helped his cause is the growing divergence between inflation and wage growth, which would be made even worse if the Bank of England stepped up its asset purchases. Average wages, including bonuses, rose by only 0.4% in the three months to March, less than half of what we saw in February and well below inflation which currently stands at 2.8%.

There were no surprises when the Bank of England released its inflation report, with growth seen accelerating to 0.5% in the second quarter, following a significant improvement in the economic data, while inflation is expected to reach 3.1% in the third quarter. One issue is that one of the assumptions the BoE made in making these forecasts was zero growth in the euro area, which in reality it will probably not achieve. This could negatively impact the UK figures going forward.

Looking ahead to the US session and the focus is once again going to be on economic data, with the empire state manufacturing figure expected to rise slightly to 4, from 3.05, while industrial production is seen falling by 0.2%.

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UK Opening Call from Alpari UK on 16 May 2013

Further disinflation expected ahead of ECB rate decision

Today’s UK opening call provides an update on:

• Japan stocks fall despite better than expected first quarter growth;
• Eurozone CPI watched closely ahead of the June ECB rate decision;
• Further disinflation expected in the US in April;
• US jobless claims expected to remain low on Thursday.

Japan’s Nikkei 225 fell more than 1% over night, as investors locked in profits after the release of some encouraging growth data for the first quarter.

Japan’s first quarter GDP came in well above expectations at 0.9%, or 3.5% on an annualised basis, with growth being driven by both a pickup in exports and a boost in domestic spending. I think it’s safe to say that the Bank of Japan’s efforts to restore growth to the country and end a decade of deflation are having the desired effect already. The boost in exports was to be expected as a result of the falling yen, it’s the jump in domestic spending that’s the most encouraging.

There’s plenty of people that doubted whether the BoJ could actually hit its inflation target but the early signs are encouraging. Clearly there’s still a long way to go, but the fact that people in Japan are spending more suggests, at least, that they believe prices will now go up in the coming years and are therefore encouraged to spend. This change in mentality is essential if new BoJ Governor Haruhik Kuroda is going to hit his target of 2% inflation in two years.

The sell-off that we’ve seen in the Nikkei 225 and a the appreciation seen in the yen since the release is clearly just a case of traders locking in profits and waiting for the next dip. At this stage, there’s no threat of the BoJ scaling back its asset purchases, so this certainly isn’t a case of positive news potentially leading to less stimulus, which is potentially what we could see in both the US and the eurozone.

In Europe, the focus is going to be back on the economic calendar on Thursday, with particular attention being paid this morning to the CPI figure out of the eurozone. Now that the ECB has finally come round to the idea of cutting interest rates, a lot of attention is going to be paid to this figure. Any signs that it is closing in on the ECBs target of below, but close to, 2% will put an end to hopes of additional stimulus for the euro area.

With this morning’s CPI figure being for April, it will obviously not have been impacted by the decision to cut interest rates earlier this month. However that doesn’t mean it won’t have an impact on the rate decision on 6 June. There were many analysts calling for a 50 basis points rate cut at the last meeting, an option that was discussed by the ECB policy makers, which suggests we could easily see another rate cut in June.

If we see further signs of disinflation when the figure is released this morning, it could convince policy makers that the action taken in May was not enough to hit its price stability target. The CPI figure is expected to remain at 1.2% in April, which is unlikely to convince policy makers into making a further cut in June. If the figure comes in below this, we could see the euro tumble as traders begin to price in another rate cut. Core CPI is expected to fall significantly from 1.5% to 1%.

Over in the US, the April CPI figure is expected to fall to 1.3%, from 1.5% a month before. While there has been a lot of talk about the Federal Reserve’s asset purchase program in recent months, in particular when they will begin reducing purchases from the current $85 billion per month, one thing that hasn’t been a concern is inflation. Had this figure moved above 2%, there would be concerns about whether it would convince the Fed to scale back its purchases, however this is not the case. If anything, like in the eurozone, disinflation is a bigger concern which could prompt an increase in the program, rather than a decrease.

Housing data is also going to be a focus in the US, with building permits and housing starts for April being released. The housing market has been a real strong point in the US this year and it’s only expected to get better as the year goes on. The number of housing starts are expected to be slightly lower than a month earlier, at 0.985 million, but this is still a very good figure. The number of building permits are expected to increase to 0.95 million, up from 0.902 million in March.

Finally we have weekly jobless claims, which are expected to rise slightly to 330,000. It is worth noting that this figure has come in below market expectations in four of the last five weeks, so I would expect a similar result this week. The difference on this occasion is, that a beat may be priced into the markets, meaning any miss could be quite negatively received.

EURUSD

The euro is continuing to look bearish against the dollar, following the break of that double top at the end of last week. The target for the pair remains 1.28, based on the size of the double top formation which, as I mentioned yesterday, is the neckline of the big head and shoulders on the weekly chart. For now, the pair appears to have found support around 1.2850, however I don’t expect this to hold for long. Below here it could find additional support around 1.2830, before reaching that huge level around 1.28.
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GBPUSD

Sterling has been in a downward spiral against the dollar for the last week or so, since hitting the big 50 fib level. Yesterday’s candle though suggests that traders may be prepared to take a break from selling the pound, although that break may well be a brief one. Yesterday’s candle is a textbook spinning top, which given that it’s come following some heavy selling, is a bullish signal. On top of that, the RSI is crossing in oversold territory, if this cross is completed, it would also suggest that we’re going to see some form of retracement of the recent downtrend. That said, the pair only broke below the 50-day SMA on Tuesday, so this is likely to act as resistance now, as we saw yesterday. Today’s candle is also bearish again which means we may have already seen as much of a retracement as we’re going to. If this is the case, then the next target for the pair will be those previous lows around 1.5030, followed by this year’s lows of 1.4830. The pair should find support along the way around 1.5150 and 1.5075.
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USDJPY

The dollar appears to have finally run into a big resistance level against the yen, following an aggressive push above the psychologically important 100 level. The pair has found resistance around 102.6, which had previously acted as support. I now expect to see a retracement in the pair, with the 100 level potentially being tested as a new level of support. As luck would have it, the 50% retracement level, of the move from 30 April lows to yesterday’s highs, happens to fall almost exactly on that 100 level. Yesterday’s candle is a great example of a spinning top, which in this case is a bearish signal. If today’s bearish candle is at least two thirds the size of Tuesday’s bullish candle, this will result in an evening star formation, which would further support the bearish outlook.
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US Opening Call from Alpari UK on 16 May 2013

US stocks lower ahead of weekly jobless claims

Today’s US opening call provides an update on:

* Nikkei ends lower despite strong first quarter growth;
* Eurozone CPI unrevised at 1.2%;
* Gold in freefall following brief retracement;
* Weekly jobless claims, housing data and manufacturing data in focus in the US session.

Most European indices are in the red this morning, as investors continue the pattern of taking profits early in the session before buying the dips when the US opens.

We’re seeing similar patterns in US indices as well, which has helped both the S&P and the Dow hit record highs on numerous occasions this year. Futures are currently pointing to a lower open in the US, however given the flood of economic data that’s due out, I wouldn’t be surprised to see these turn positive later, irrespective of whether the data is good or bad.

If you’re looking for a clear example of the markets currently moving in a way that is unrelated to the quality of the data, then look no further than the movement in the Nikkei over night. The Japanese index turned negative, and ended the Asian session 0.4% lower, following the release of the GDP data which came out much better than expected.

The Japanese economy grew by 3.5% on an annualised basis in the first quarter, much stronger than the 2.8% forecast figure and the 1% figure seen in the fourth quarter of last year. The economy was given a major boost by the weaker yen and also a pickup in spending domestically. These are positive early signs for the Bank of Japan, who has taken up bold, risky measures in order to return the economy to growth and end a decade of deflation. Despite receiving heavy criticism from a number of economists, it looks like “Abenomics” could actually be the answer to Japan’s problems.

It’s been a bit of a slower start to the European session this morning. The eurozone CPI came out in line with the flash estimate earlier this month at 1.2%, so there was no surprises there. Given that the ECB made its decision to cut interest rates by only 25 basis points earlier this month with this figure in mind, any revision lower would have only increased the chances of another rate cut in June.

Gold prices have continued to tumble on Thursday. Gold prices did recover much of its losses after its break of that key $1520 level last month, however as expected, traders were simply waiting for another opportunity to go short, which came at the 61.8% retracement of the move from 9 April highs to this year’s lows.

Gold is now once again in freefall, with a number of things being blamed for the drop including the sizeable outflows from Gold ETFs, a stronger dollar and the fact that the Fed is reportedly putting plans in place to phase out its asset purchases. Nothing looks like slowing the decline in Gold at this stage, although it is approaching a major support level between $1300 and $1320, which should see it slow. A break of this level should see it target $1150.

Looking ahead to the US session and the focus is once again going to be on the economic calendar, with particular attention being paid to the housing data, the initial jobless claims and the Philly Fed manufacturing index.

The initial jobless claims has been a standout performer in the US economic data this year. The fact that employers are letting fewer people go is a really encouraging sign as it suggests that businesses are optimistic about the economic outlook. Another figure around 330,000 today will be yet another sign that the US economy is improving with every month that passes, despite the economic slowdown in Europe.

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UK Opening Call from Alpari UK on 17 May 2013

Markets spooked as Fed considers QE3 exit this summer

Today’s UK opening call provides an update on:

• European futures tracks US indices lower;
• Markets spooked by talk of the Fed phasing out QE3 this summer;
• Nikkei continues its ascent following a brief pullback on Thursday;
• Eurozone construction and US consumer sentiment eyed on Friday.

Most European indices are expected to open lower on Friday, following in the footsteps of their US counterparts after the S&P ended the session in the red for the first time this week.

The economic data released in the US on Thursday was very disappointing, which under normal circumstances would have heavily weighed on the rally in the stock markets. However, this is no normal rally. Once again, the economic data was almost completely ignored and the pull back following the data was seen as a buying opportunity.

We saw perfect examples of this twice following the release of the weekly jobless and the Philly Fed manufacturing index. Both came in well short of market expectations sparking a sharp sell-off, but within an hour and a half on both occasions, the S&P was trading above the levels seen in the lead up to the releases. On this occasion though, the strategy didn’t work too well, as two Fed members spoiled the party by discussing the phasing out of QE, potentially as early as this summer. Needless to say, the markets didn’t respond positively to this.

I think it’s worth noting here though that neither of the Fed members were voting members of the FOMC, so their opinion doesn’t carry as much weight as Ben Bernanke, or any of the other voting members. Based on the reaction on Wall Street, that clearly doesn’t matter as both of these clearly have inside knowledge on the matter. On this occasion, there was no opportunistic buying, and both the S&P and Dow ended the day down 0.5% and 0.28%, respectively.

That concern didn’t really filter through to Asia over night, where the Nikkei continued its ascent. We did see some unusual movement in the Nikkei on Thursday, when it ended the session lower despite growth data for the first quarter coming in well above market expectations. This just highlights how bizarre the markets are at the moment.

Over in Europe today, things are looking a little quieter. Clearly the prospect of Fed phasing out its asset purchases is hitting index prices in the futures market at the moment, with the CAC, DAX, IBEX and STOXXE 50 all expected to open lower. There’s very little out on Friday in respect to economic data, which is likely to leave the markets without any real direction.

The construction output figure for March may attract some attention when released at 10:00, following two consecutive months on negative figures. In the US later we have the preliminary UoM consumer sentiment survey, which will be watched very closely for signs that consumers are starting to feel the pinch as a result of the payroll tax, which rose at the start of the year. Expectations are currently for a small improvement here to 77.9 from 76.4 in May.

EURUSD

The euro is continuing to look bearish against the dollar, as it fast approaches its initial target of 1.28. This target is based on the size of the double top the pair broke below recently and the neckline of the head and shoulders on the weekly chart. We saw a brief period of dollar selling yesterday, following the release of some woeful US figures. However, this was only temporary, and the pair quickly recovered to trade slightly lower on the day. Yesterday’s candle could therefore be seen as a potential bullish signal, given that it looks like a textbook doji. However, given the way the price action reacted to the temporary dollar weakness, I remain bearish. This is highlighted perfectly on the four-hour chart, where the price action bounced aggressively off the middle bollinger band where there was clearly a combination of profit taking and sell orders.It is also worth paying attention to the death cross which we’re seeing on the daily chart, 50-day SMA crossing below the 200-day SMA. This is quite a bearish signal. Although looking back over the last five years or so, the price action immediately following the cross does quite often turn bullish briefly, before heading lower.
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GBPUSD

Sterling has turned bearish again on Friday, following a brief retracement. The pair found strong resistance from the 50-day SMA, after failing to close above it on each of the last two days. This is quite a bearish signal in itself, given the direction of the pair in the lead up to those two days. It will be interesting now to see how the price action reacts to the 61.8 fib level, of the move from this year’s lows to May’s highs. Already we’re seeing some support between the 50 and 61.8 fib levels which could suggest this pull back is simply a retracement of the bullish move dating back to March. The thing that makes me doubt this is the clear resistance at the 50 fib level on the daily chart which was an incredibly bearish signal. If the pair breaks below the 61.8, it will confirm the bearish outlook for me. If the pair does continue to push lower, I expect it to find support around 1.5218, 50 fib, 1.5150, 1.5126, 61.8 fib, 1.5075 and 1.5030.
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USDJPY

The dollar appears to be trading sideways against the yen, after running out of steam around 102.75, a previous level of resistance. So far, during this huge move higher in the pair, there has been a clear pattern of the pair hitting big resistance levels, before pulling back to either the 50 or 61.8 fib level. As you can see on the charts below, I have now added a fib, from the most obvious recent swing low to Wednesday’s swing high. If we do see a pull back in the pair, which we haven’t seen clear signs of yet, I think the most obvious level it will target is the 50 fib, given that it falls almost exactly on the 100 level, which previously acted as a key level of resistance for the pair. As I mentioned though, we haven’t seen signs of a pull back yet. If the pair breaks below the pennant it is currently trading in, the I expect it to pull back to the 50 fib level.
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Ahead of the open we expect to see...

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US Opening Call from Alpari UK on 17 May 2013

US to open higher as traders continue to buy the dips

Today’s US opening call provides an update on:

  • Europe lower following comments from Fed members;
  • Minneapolis Fed President Kocherlakota’s speaks later;
  • Consumer sentiment for May watched closely on Friday.
Stocks are under pressure early in the session, after comments from a couple of members of the Fed spooked investors yesterday evening.

European indices are trading marginally lower on Friday, after the Dow and S&P both closed lower in the US session the day before. With no noteworthy economic data out of Europe, indices are likely to continue to tread water this morning, as investors await some form of direction from the US.

The comments from Bank of San Francisco President John Williams and Dallas Federal Reserve President Richard Fisher have certainly spooked the markets. However, given that neither of these are voting members, it will be interesting to see if investors just using this an another opportunity to profit from the sell-off and buy the dip. We’re already seeing evidence of that in Europe this morning.

If we get a similar tone from Minneapolis Fed President Narayana Kocherlakota later on today, we could see further risk aversion in the final few hours of the week. Everyone knows that the Fed’s ultra-loose monetary policy won’t last forever, but I think a large proportion factored in the Fed remaining extremely accommodative until at least the end of the year.

The economic calendar is looking pretty light on Friday, so there’s going to be very little driving sentiment. The only major economic release will be the UoM consumer sentiment survey, which is expected to increase to 78.0 in May. Consumers have been helped by lower energy costs so far this year, but with the price of WTI crude on the rise, we could see consumers finally feel the pinch of the increase in the payroll tax at the beginning of the year. We could see this impact the consumer sentiment figures as early as next month.

Ahead of the open we expect to see...

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UK Opening Call from Alpari UK on 20 May 2013

Europe to open higher ahead of Italian data

Today’s UK opening call provides an update on:

• European indices tracks US counterparts higher on Monday;
• US consumer sentiment highest since July 2007;
• Italian industrial orders to fall again in March;
• Fed’s Charles Evans speaks later in Chicago.

European markets are forecast to open higher on Monday after the S&P and the Dow posted to record highs again on Friday.

US markets rallied on Friday following the release of the UoM consumer sentiment figure, which rose to its highest level since July 2007. This is extremely encouraging for the US, especially when you consider how much consumer spending contributes to GDP. On top of that, there have been concerns that we may see a pull back in consumer spending as a result of the rising oil prices.

Until now, consumers haven’t really felt the full impact of the payroll tax increase, due to the fact that it was accompanied by a fall in energy prices. There is a strong possibility that once these energy prices hit last year’s levels again, consumers will feel the pinch and this number will be one of the earliest warning signs. For now at least, this is clearly not an issue, which is why US stocks hit record highs on Friday and indices in Europe are tracking them higher.

The economic calendar is looking pretty empty this week, leaving very little to drive market sentiment. On Monday, the only noteworthy economic release will be Italian industrial orders and sales for March. Orders are expected to have fallen by 2.5% from a month earlier, with sales down 1%. Compared with a year earlier, this represents a staggering fall of 7.9% and 4.7%, respectively. Given these figures, it’s no surprise the country is now in its worst recession since records began.

Given the light economic calendar and the Fed’s apparent willingness to phase out its asset purchases, potentially as early as this summer, there’s likely to be a lot of attention on Federal Reserve Bank of Chicago President Charles Evans later, when he speaks at the CFA Society in Chicago. Comments from two non-voting members last week really spooked the markets. If Evans suggests that these comments are correct, we’re likely to see a very negative reaction in the US markets, in particular.

Aside from that, there’s going to be very little driving market sentiment today, although that doesn’t mean there won’t be direction. What we could see, as we saw last week, is investors using any signs of weakness as an opportunity to buy on the cheap and continue to drive the markets higher. While markets were pushed to all time highs on Friday off the back of positive data, negative data appears to produce similar results, with investors instead just buying the dips and waiting for them to inevitably move back into the green. That said, that can’t go on forever and eventually investors are going to get burned.

Ahead of the open we expect to see...

Read the full report at Alpari News Room​
 
UK Opening Call from Alpari UK on 21 May 2013

UK inflation expected to fall ahead of Carney’s arrival

Today’s UK opening call provides an update on:

• European indices to open lower on Tuesday;
• Voting FOMC member Evans supports ultra-loose monetary policy;
• Rally expected to continue as investors move from defensive to cyclical stocks;
• UK inflation expected to fall in April, opening the door to more stimulus from BoE.

European equity indices are expected to open slightly lower on Tuesday, following in the footsteps of their US counterparts which ended slightly lower, despite both the S&P and Dow hitting new all time highs earlier in the session.

US equities shed earlier gains following comments from Chicago Fed President Charles Evans, who appeared to support the need for ultra-loose monetary policy from the central bank, in the near term at least. These comments essentially go against those from two non-voting members last week, who suggested that a plan could be put in place to begin phasing out the asset purchases this summer. Given that Evans is a voting member, his comments carry much more weight.

You wouldn’t have guessed that from the overall reaction in the markets though. What we saw yesterday was clearly another example of the markets ignoring the news and reacting how they wish. The good news for those who remain bullish equities, is that investors do appear to be moving away from defensive stocks and back into cyclical stocks, which suggests the rally is far from over.

Today, I expect to see more of what we saw last week, with investors taking full advantage of the dip in the markets to buy on the cheap and continue to push equities to record highs. There’s very little data out on Tuesday to provide any direction for the markets, although even if there was, it would probably be largely ignored and instead just used to keep the rally going, irrespective of the quality of the data.

One piece of data worth keeping an eye on is the UK CPI figure which is due to be released at 9.30 BST. Expectations are for a slight drop to 2.6%, down from 2.8% a month earlier, with the core inflation figure falling to 2.3%. Ordinarily, this would raise expectations for some additional easing from the Bank of England at its meeting next month. However, given that this is Sir Mervyn King’s last meeting as Governor, I think this is unlikely.

What it will do is give Mark Carney more room to manoeuvre when he takes over from King on 1 July, although even he may have a tough time convincing other policy makers to provide additional stimulus. The minutes from May’s meeting should provide some insight into what we can expect from the BoE in the coming months, when they are released tomorrow.

Ahead of the open we expect to see...

Read the full report at Alpari News Room​
 
US Opening Call from Alpari UK on 21 May 2013

Fall in UK CPI, leads to sell-off as market indecision dominates

Today’s US opening call provides an update on:

* UK CPI inflation falls more than expected yet may be too late for further QE
* Lack of market movement signals disconnect between markets and fundamentals
* RBA minutes disclose reason for rate cut, leading to market selloff
* FOMC board member Charles Evans favours continuation of loose monetary policy

The US markets are expected to open lower off the back of yesterday’s record breaking push in global markets. This follows on from the European markets which have shown significant indecision today off the back of yesterday’s strong performance.

The main event of the day was always set to be the UK CPI rate of inflation, which was widely expected to fall from 2.8% to 2.6%. However, the surprise reduction to 2.4% sent shockwaves across the currency markets, sending cable lower by 30-40 pips. The importance of this rate of inflation is that the CPI level is utilised by the Bank of England as the core target in setting their future policies. Subsequently, a reduction towards the 2% target provides increased room for manoeuvre and the potential for additional asset purchases from the MPC which have remained at GBP375 billion since July 2012.

Rumours within the UK that the ability of incoming BoE governor Mark Carney to make any meaningful impact will be lessened owing to the stifling effects of inflation will no doubt subside somewhat. This move closer towards the target rate is a shift which was a necessary prerequisite to any further consequential expansive policies. However, while many turned to the UK indices in expectation of a major boost off the back of increased expectation of monetary loosening, this simply did not happen.

The already buoyant FTSE100 proceeded to turn to the downside and has since lost 12 points, returning closer to parity over the day so far. This inability to gather the momentum for a further move to the upside could be related to a market where sellers are perhaps seeking highs to sell on more than where buyers are looking for dips to buy into. Subsequently an inverse relationship is born where positive news sends markets lower and negative news brings a boost to the markets. All in all, this points to an ever more unstable and irregular rally that we are currently exhibiting.

Earlier this morning, the RBA released minutes from two weeks ago, which was interestingly the meeting where the cash rate was cut to a record low. Interestingly, the value of the Australian dollar was cited as a key reason for the rate cut, which was utilised as a tool to boost businesses in the face of worsening trade terms. What is interesting about this is that the AUD rate is clearly inversely correlated with the RBA cash rate and subsequently, the recent devaluation of the dollar is likely to point to a lower likeliness of lower interest rates in June.

Lastly, FOMC member Charles Evans disclosed that he remains highly dovish with regards to the current Fed standpoint on asset purchases, with no end date or ‘tapering’ suggested for now. Evans is relevant owing to the fact that he is a voting member whereas some of those whom discussed a potential tapering last week did not have the same voting power. Markets are now looking forward towards tomorrow’s speech from Ben Bernanke to gauge which side of the fence Big Ben sits on.

US markets are expected to open...

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UK Opening Call from Alpari UK on 22 May 2013

All eyes on the UK ahead of BoE minutes and retail sales

Today’s UK opening call provides an update on:

• UK in focus ahead of BoE minutes and retail sales;
• Two Fed members ease fears that asset purchases will be phased out this summer;
• All eyes on Bernanke later for his take on the Fed’s purchases;
• BoJ leaves monetary policy unchanged but raises economic outlook.

Attention is going to be back on the UK on Wednesday, with minutes from the Bank of England meeting earlier this month and retail sales data for April both due to be released.

On Tuesday, the CPI figure for April came in well below expectations at 2.4%, which essentially leaves the door wide open to additional easing from the BoE at future meetings. Although, nothing is expected at the next meeting in June, which will be Sir Mervyn King’s last as BoE Governor, before Mark Carney takes over in July.

The minutes from the BoE meeting always attract a lot of attention, and these will be no different. We may not be looking for hints of additional easing at the next meeting in June, but any signs that policy makers that voted against more asset purchases will ease their stance if inflation falls, will only increase expectations for meetings in July and August.

That isn’t to say that further easing is off the table at the meeting in June. However, based on the voting and minutes of the last few meetings when King was unable to convince most policy makers to join him in the “yes” camp, despite the fact that the UK was facing a potential triple dip recession, it is extremely unlikely. If anything, not that recession has been avoided, I wouldn’t be surprised if the voting has swung more in the favour of no more quantitative easing, at say 7-2.

UK retail sales will also be watched closely this morning, for more signs that the UK recovery is gathering pace in 2013. UK data has exceeded expectations on numerous occasions recently, which has probably led to slightly increased expectations today. Retail sales are expected to be flat in April, from a month earlier, which represents a 2% improvement compared to April last year.

European index futures are pointing to a higher open this morning, after two more voting FOMC members, James Bullard and William Dudley, appeared to suggest that the Fed has no intention of phasing out its asset purchases this summer. Fears were raised last week when two non-voting Fed members suggested that a plan was being put in place to taper purchases as early as this summer, although this appears to have been quashed now after numerous voting members suggested otherwise.

The final word on this, for now any way, will probably come from Fed Chairman Ben Bernanke later this evening when he testifies before the Congressional Joint Committee. If Bernanke joins Bullard and Dudley in supporting the need for accommodative policy, it should pretty much put an end to speculation, for now at least.

Staying with central banks, the Bank of Japan left monetary policy unchanged over night, in a move that surprised no one. It was only two months ago that the BoJ announced its huge stimulus program, any changes are unlikely to come for at least a couple more months until we see what impact the asset purchases have had. So far, they seem to have had a positive impact, which is why we saw the central bank raise its economic outlook.

EURUSD

We’ve seen a strong rebound in this pair after it reached its 1.28 target on Friday, which was based on the size of the double top it broke below a couple of weeks ago and the fact that it’s the neckline of the longer term head and shoulders. Where the pair goes from here is crucial, as a break of the 1.28 neckline could prompt a move back towards 1.18, based on the size of the head and shoulders on the weekly chart. So far we have seen the pair bounce off this support level, however the rally in the euro may be short lived. As always, the best way to judge whether we’re seeing a retracement or trend reversal is through using the Fibonacci retracement levels. If you add a fib from the most recent clear swing highs to swing lows, you can see that the 50 fib level falls very close to 1.30, a key psychological level for the pair. If the pair finds resistance here, we could see another attempt at a break below the neckline in the coming weeks.
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GBPUSD

Sterling continued its downward spiral yesterday after April’s inflation figure came in well below expectations, leaving the door open to further monetary easing in the coming months. The pair did find support yesterday around the 61.8 fib level, which may suggest that the downtrend we’re seeing is simply a retracement of the uptrend which began back in March. If this is the case, we could now see a push to the upside, with the next resistance levels coming around 1.5172, 1.52 and 1.5280. On the other hand, if we see this level broken, it would suggest that what we’re seeing is a continuation of the longer term downtrend which began at the start of the year. This is supported by the fact that the pair broke below the bearish flag formation a couple of weeks ago. If we do see the pair break through the 61.8 fib level, the next levels of support should come around 1.5075 and 1.5030.
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USDJPY

The dollar has been trading pretty flat against the yen over the last week or so, following some pretty mixed messages in relation to the yens weakness out of Japan. This period of consolidation following such an aggressive move higher, resulting in a pennant formation, is generally quite a bullish signal. If we see a break above the pennant, the pair should find additional resistance around 102.87 and 103.30, both previous levels of resistance. The next target for the pair will then be 103.75, a previous major support level, followed by 105.57, 61.8 fib and also a previous level of support and resistance. Alternatively, we could see a bigger retracement before the pair resumes its move higher. As always, the 50 and 61.8 fib levels would be worth watching if we do see this.
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