Forex research

US Opening Call from Alpari UK on 6 June 2013

Markets pause ahead of key central bank policy announcements

Today’s US opening call provides an update on:

  • European indices trade higher as trading settles ahead of key day
  • Sir Mervyn King chairs his final MPC meeting of his 10 year reign as BoE governor
  • ECB rate decision provides another reason for Draghi to talk down the euro
  • Australian markets react to yet another poor release as their trade balance disappoints

The European markets are trading higher this morning ahead of the BoE and ECB monetary policy announcements. The increasingly unpredictable nature of equity markets has largely been driven by proceedings in Japan whereby up to 7% of the market is being lost on a regular basis. In the past, the markets have typically taken a two way relationship between European and US indices; each feeding off each other as an inclination of the potential direction of the successive session. However, the new found importance of Japanese economic and market performance as a driver of global growth now put the US onto a back seat somewhat on a bus driven by the somewhat reckless Shinzo Abe.

Today marks the final meeting by the nine MPC members under the chair of outgoing governor Sir Mervyn king. There are few surprises expected from today’s meeting after the continued standoff which has been ongoing over recent months. The continued insistence of three MPC members (including King) that there should be a further increase to the current asset purchases level has been unable to effect the remaining members despite continued weaknesses within the UK. That being said, we are now at a point whereby the economy is experiencing a clear pickup in economic indicators.

Most notably, a better than expected services PMI figure yesterday puts increased pressure upon the pro-QE members to reverse their votes given the new found confidence associated with some of the revised growth forecasts announced yesterday. The impact yesterday’s announcement has upon the probability of quantitative easing being voted for in today’s meeting was highlighted JP Morgan’s reversal of their previous view that further QE would be advisable for the UK economy. Subsequently, the only potential surprises from this meeting are likely to be in the form of a lessened number of votes in favour of further monetary easing. That being said, we will only find out the voting specifics later in the month when the minutes of today’s meeting are released.

In a similar event, we are also awaiting the headline event of the day in the form of the ECB interest rate decision later today. I largely expect the current rate of 0.5% to be maintained given the central bank reduced the headline rate just last month and subsequently the effects upon the economy have not been given a chance to take shape. That being said, Mario Draghi is no doubt aware that the rate decision represents only one half of today’s announcement, and subsequently he has the opportunity to affect the markets significantly without the need for any structural adjustments. With the benefit of prior experience, much of the expectations within the markets are likely to be geared more towards Draghi’s press conference within which any further talk of negative rates is likely to be jumped on by markets. That being said, having already heard of this potential measure, there would likely be less of a response.

The Australian dollar continued it’s freefall overnight off the back of further disappointing figures released by the Australian Bureau of Statistics. The trade balance figure has been seen as a key barometer of international competitiveness and the health of the Australian export market in particular. The slowdown in China has clearly taken an effect upon the Australian economy after yesterday’s disappointing GDP figure and today’s figure continued to paint a similarly weak picture as the trade balance fell from 0.56 billion to 0.03 billion. This was well below the market expectations of 0.20 billion and continued the downward spiral for the Australian dollar. This continuous poor performance is also bringing about increased likeliness of a further rate cut going forward, with expectations of a July cut increasing with each poor release.

US markets are expected to open higher off the back of the strong European session, with the S&P500 +7 and DJIA +50 points.
 
UK Opening Call from Alpari UK on 7 June 2013

Further volatility ahead as NFP could resume dollar weakness

Today’s UK opening call provides an update on:

• Markets plummet as US dollar sell-off sparks widespread volatility
• No surprises from ECB and BoE as European monetary policy remains constant
• May non-farm payroll figure expected to bring yet further unpredictability
• US unemployment rate set to share the headlines in largely employment based day

As we enter the final day of this historic week, the global forex and indices markets have reached a crescendo of volatility ahead of today's non farm payroll decision. The ability of markets to sufficiently rally as a means to reverse the recent downturn in the equity markets has come under increased scrutiny as the appearance of any marginal rally has been seen as a level to short the markets. Previous attempts to buy on the dips has now been replaced by a sell on the peaks policy amongst traders. In particular, yesterday saw the continued weakness of the US dollar, in a move which dumbfounded the markets given the apparent non-existence of any similarly substantial fundamental event. Rumours of traders cutting their positions ahead of today's crucial non-farm payroll release could have sparked the wider sell-off, however it is clear that once key levels had been broken (most notably within the USDJPY, GBPUSD and FTSE100) the markets took hold of the market movement and ran with it.

Within the European session, the announcements from the ECB and BoE provided little in the way of tangible surprises for the markets to go on after both held their monetary policies constant. Of the two, the ECB announcement was always likely to provide more in the way of market volatility owing to both greater uncertainty regarding the announcements, along with the opportunity for Mario Draghi to bring about increased volatility during his press conference. Surprisingly, Draghi almost entirely avoided any form of widespread sell-off in the euro despite discussions regarding the likes of negative interest rates and investment instruments available to boost the market. Instead, markets took solace from the notion that the eurozone is now getting back onto a more stable footing, ahead of a slow yet stable recovery.

The day ahead is expected be dominated by the highly anticipated non-farm payroll figure for May, whereby market expectations call for a marginal increase from 165k to 167k off the back of the strong out-performance in last month's release. Unfortunately for me the prediction is a little lower, around 155k taking into account both the disappointing ADP figure earlier in the week and the comparative cumulative weekly unemployment change releases from April to May. Typically the ADP has been seen as the key indicator in the month to gain an understanding of where the headline figure is likely to be. However, this has been proven to be increasingly unreliable and subsequently there is much to gain from taking into account the weekly unemployment claims data for the month. Given yesterday's widespread sell-off in the US dollar, a poor payroll release today could be the final nail in the coffin for those pairs, bringing them back to retest yesterday's lows.

The US unemployment rate is released simultaneously alongside the payroll figure, and whilst there is often the propensity to solely watch the latter, it is the former which has the ability to create key headlines from the day's proceedings. The unemployment rate has been somewhat of an enigma for market forecasters, whom have an ability for consistently failing to predict the correct rate despite movements only ever usually occurring in increments of 0.1-0.2%. One of the reasons for this poor record predicting the unemployment rate is owing to the fact that it is always predicted to remain steady, yet has been moving constantly through the months. Again, the market expectations for this figure is for no change around 7.5%. However, my bias is towards a further reduction to carry on the positive trend and thus a rate of 7.4% seems more plausible.

European markets are expected to open higher, with the FTSE100 +1, CAC +10 and the DAX +43 points.

EURUSD

Substantial gains in the value of the euro yesterday driven in part by Mario Draghi’s decision to hold rates steady along with the widespread sell-off in the dollar. This move above the 38.2 Fibonacci retracement and previous highs now goes some way to invalidating the head and shoulders pattern seen by many as key to a bearish move back down towards previous lows. However I was always a little skeptical about this given the formation took place in the middle of a major trend-line breakdown (July 2012) which in itself looked bullish. The ability of the candle to close above the more recent descending wedge formation on Monday brought about a more bullish tone to the pair and this has been proven correct given the subsequent rise yesterday.
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Taking a look at the weekly chart, there is a clear uptrend now in existence for the pair, whereby the next logical step would be to post a higher high for confirmation of this. The stochastic and CCI indicators both point to further upside movement and that is what I believe is what we will get. Subsequently, initially the next target for the pair is for 1.349 as this represents the general level of resistance respected in January, plus is the region of the 200 week moving average. However, for the full move, I believe it is possible we could see a return to the levels around 1.383 which is the 61.8 Fibonacci retracement of the 2011/12 downtrend. Taking into account the size of both previous uptrends since July 2012, each have been almost identical in size. Subsequently a shift up towards 1.382 would provide a third 1000 pip rally.
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GBPUSD

Yesterday’s rally in the value of cable coincided with widespread dollar weakness across the board. My prediction of a rise up to 1.57 levels was certainly accurate in the end, yet it certainly came far sooner than I anticipated. The rally has since faded, bringing yesterday’s close closer to 1.56, which corresponds to the previous highs back in April. Having tagged the upper target, there is less emphasis placed upon upside momentum, however I do expect the price action to return to 1.57 to retest resistance. That being said, now we have established a new higher high, there is the potential for a pullback in the coming period to establish a higher low. The is back up by both the stochastic and CCI indicators which are both turning to the downside from overbought levels.
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Taking a look at the weekly chart, the gravity of yesterday’s move is apparent as we have subsequently cleared a substantial region of resistance and have moved back into a key trading range for the pair. The 1.577 region looks set to provide further resistance given this is also a region where the 100 and 200 moving averages currently meet. However, both the CCI and stochastic oscillator point towards further upside and subsequently I believe the future for this pair is higher with 1.577 as the first target and the 161.8 Fibonacci expansion at 1.625 as the final target. This corresponds with previous highs throughout 2012.
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USDJPY

The loss of that key ascending trend-line brought about a hugely significant sell-off in this pair yesterday, bringing about a 200 pip fall. Today has seen the price action retrace back to the 23.6 Fibonacci level and has now clarified new found resistance. Both of my bearish targets were hit yesterday upon the break of this level and as such I am looking towards a move back down towards 93.6 as a potential bottom to this downtrend before a move back to the upside. That being said, it is worth being careful as the yen is actively being devalued by the BoJ and Japanese government and thus there is always the potential for further steps to reduce the value of the yen should we see too much downside in this pair.
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Taking a look at the weekly, it is a similar story, with both the ascending channel and trend-line both broken. The stochastic and CCI indicators both point towards further downside in the pair yet this could be limited. However, usually a significant breakdown in a trend-line such as this proceeds a widespread sell-off in a pair and subsequently for the time being I remain bearish.
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US Opening Call from Alpari UK on 7 June 2013

Market volatility peaks ahead of key non-farm payroll release

Today’s US opening call provides an update on:

  • Global markets continue to fall off the back of significant volatility yesterday
  • Dollar weakness continues after broken key technical levels
  • Markets prepare for further volatility ahead of the crucial non-farm payroll release
  • Canadian employment data also due out simultaneously

The global equities markets continue to fall today off the back of a highly volatile and significant day of trading yesterday. In particular it was the Nikkei 225 which continued it’s freefall, plummeting to 12,660 in the Asian session; that represents over 20% wiped off the value of the top Japanese index. The reasons for this volatility within both the equities and forex markets are not entirely clear, with yesterday’s top ticket items in the form of the ECB and BoE rate decisions serving as somewhat non-events owing to predictable decisions to keep monetary policy steady. However, if we separate the two markets for a moment, it is clear that Shinzo Abe‘s Abenomics strategy of a three ‘arrow’ system is becoming increasingly disappointing for investors who in actual fact are looking for the next ‘fix’ to push the markets higher.

What is increasingly apparent is that the markets have been trading based upon an increasingly artificial strength based upon promises, low volume and rhetoric. The fact that we saw almost 100 points added onto the Nikkei 225 prior to Abe even taking power provides a clear picture of the markets jumping ahead of the gun. This rally was brought about by rhetoric and speculation and subsequently has been weakened by an increasing lack of confidence in that same rhetoric.

Over in the foreign exchange markets, the widespread sell-off in the US dollar was driven in part by the loss of key levels in the dollar yen in particular. The widespread loss in confidence of Abenomics as personified by the Nikkei 225 bear market has clearly impacted upon the inversely related yen value. Subsequently, while the Nikkei falls, the yen has appreciated, and this continued move has clearly reached breaking point in the value of the USDJPY and with a break below a long term trend-line and subsequent technical driven sell-off seen yesterday.

The market volatility is expected to reach a crescendo today whereby the ongoing weakness in the value of the US dollar is compounded by the uncertainty of the non-farm payroll release later today. The daddy of all economic releases, the non-farm payroll has the ability to bring about significant technical changes within the markets and has been associated with the most volatile period of the month. Given the increasingly unstable nature of the markets, we do expect to see fireworks later today. The market expectation is of a marginal rise from 165k to 167k, yet there have been signs within the markets that this figure could come in lower than forecasts may suggest.

The disappointment of Wednesday’s ADP non-farm payroll figure provides one such backdrop, however the inter-linkages of these two namesakes at times appear to stretch no further than the name given recent disparity in these two figures. However, taking a look at the weekly unemployment claims figures, there seems to be the potential for a lowered figure. That being said, given the volatility before and after the release, it is only the bravest of investors who tend to trade this critical event.

The US also releases their headline unemployment rate later today. This typically plays second fiddle to the non-farm payrolls number. However, I do expect to see further losses in the rate despite market predictions of otherwise. The tendency within the markets is for forecasters to expect this rate to remain steady month on month, yet if history is anything to go by, this is highly unlikely. Of the last six occasions, all six have seen a change in this figure, typically in increments of 0.1% either way. On this occasion, I expect the figure to come in around 7.4%.

Lastly, we are also looking forward to the release of the Canadian unemployment data at the same time as the US, with the employment change figure taking center stage much like their American counterparts. Market predictions of 16.1k from last month’s below expectations figure of 12.5k are likely to be overdone and I am expecting to see further weakness in this figure. The Canadian economy has posted poor employment figures for two consecutive months now and there is no reason to expect this to reverse for May. Subsequently it is worth while keeping an eye out for these figures and their effect upon any of the Canadian dollar pairs.

The US markets are expected to open mixed, with the S&P500 up +1 point and DJIA down +3.5 points.
 
UK Opening Call from Alpari UK on 10 June 2013

Stocks to open lower after Friday’s NFP boost

Today’s UK opening call provides an update on:
• Stocks set to open lower after non-farm hangover
• Chinese trade balance improves yet worrying signs for Australian imports
• Judge warns that German hearing could spark beginning of the end for the euro

European and US equities are widely expected to open lower today off he back of Friday's strong US non-farm payroll figure. A clear sign of market weariness came with the market sell-off in the lead up to the release associated with perceived anxiety around a potential under-performance of Friday's key unemployment figure. However, these fears appeared unfounded, as the payroll figure for May came in above expectations at 175k, bringing a brief reprieve from the relentless losses seen across global indices in recent weeks. However, today the new status quo appears to be resurfacing, with a pullback expected to pare some of Friday's gains.

China came back into focus over the weekend with the release of the trade balance figure for May. Much of the interest in this figure was originally associated with the potential impact that new regulations on recorded transactions might make to the trade balance figure. However, the core figure provided little by means of noticeable deterioration within the Chinese economy, instead rising above expectations from 18.16 billion to 20.40 billion. However, the components of this release provided interest, with export growth tumbling and imports shrinking.

Chinese trade strength is typically based upon the value and volume of exports and thus a shift from 14.7% growth into a meager 1% is highly significant, representing the lowest growth in exports in 1 months. Many questions have been asked of the Chinese growth story recently, with doubts emerging as to whether they can sustain the type of growth required to pull the global economy out of this economic downturn. The recent release of two contradicting manufacturing PMI figures continue to portray an increasingly cloudy picture of Chinese economic progression given uncertainty following a reduction in growth from 7.9% to 7.7% in Q1.

However, it was the growth of Chinese imports which recovered the overall picture this weekend, shifting from 16.8% growth to a -0.3% reduction. The deterioration in import volume is particularly notable for the likes of Australia who have seen an increasingly bleak economic outlook given weaknesses at home and more importantly abroad. The over-reliance of the Australian economy on the health and demand of one single key economic partner has clearly become apparent and this lowered demand has subsequently had an effect upon commodity prices globally.

A prominent judge in the eurozone has warned that a constitutional hearing held within Germany this week has the potential to bring about a process which could see the end of the euro as we know it. Tuesday and Wednesday sees a key hearing within the German courts as to the validity of the OMT program within the German legal framework. However, Udo di Fabio, euro expert within the constitutional counrt last year, has speculated that the impending hearing has the ability to bring about a crucial showdown between Germany and the ECB, ultimately bringing into question the validity of the single currency.

European markets are expected to open down, with the FTSE100 -14, CAC -10 and DAX -2 points.

EURUSD

The break above the descending trend-line last week was confirmed as a bullish signal on Thursday when we saw the price action touch 1.33 momentarily. Today we opened around the 1.32 area, which represents the previous highs in April and thus the ability to treat this level as support would be notable for a move higher. That being said, there is a potential for the price level to move lower towards the 38.2 Fibonacci retracement (May 2011 – July 2012) prior to a move higher.
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Taking a look at the weekly chart, the target for the pair is for a move higher towards 1.383, which represents the 61.8 Fibonacci retracement. This would also provide an aspect of symmetry given the previous two rally’s in 2012/13 were both also 1000 pips in height. The CCI and stochastic are approaching oversold and thus we are likely to see some form of temporary pullback in the near future.
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GBPUSD

Cable has also been showing strong bullish signs of late, with Thursday’s rally setting a near four month high. Having spiked off our target price level derived from the top of an ascending channel, there has been some signs of a consolidation period. The stochastic and CCI indicators are both overbought on the daily chart and thus there is the potential for a move lower before a move back to the upside.
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Taking a look at the weekly chart, the current price level provides evidence of a higher high, which confirms the bullish momentum of the pair for the time being. The stochastic and CCI indicators are both pointing upwards, indicating potential for more upside. Should this occur, I would be looking for a symmetrical rally to that from March, which would bring about a rise towards the 100.0 Fibonacci extension and 200 week moving average around 1.577.
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USDJPY

The dollar yen pair has regained much of its losses from Thursday, after the strong non-farm payroll brought about renewed hope for the dollar. The stochastic and CCI indicators point towards a move back to the upside and this could bring about a return to the 100 level in the coming days. However, the crucial break below the ascending trend-line dating back to October 2012 is highly significant and bearish for the pair over the long run.
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The weekly chart provides clear evidence that the pair are well respecting the technicals, with the weekly candle closing on the 23.6 Fibonacci retracement. However, this chart also illustrates the importance of Thursday’s break to the downside, invalidating a previously key trend-line and thus pointing towards a more bearish outlook for the pair going forward.
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US Opening Call from Alpari UK on 10 June 2013

Japanese influence pushes markets higher despite Chinese data

Today’s US opening call provides an update on:

  • Markets mixed following non-farm payroll boost
  • Japanese GDP beats expectations, leading Nikkei 225 higher
  • Mixed Chinese data compounds Australian worries
  • Spanish economy minister expect economy to beat expectations

There is clear market indecision seen throughout the global markets today, with European markets opening lower, yet paring much of those losses throughout the morning to move higher later in the day. The volatility and uncertainty surrounding global equity and forex markets have been a noticeable feature during recent weeks as confidence in the strength of growth and recovery within the likes of Japan and China have come into question. Furthermore, as global indices reach new record or all-time highs, the validity of reasoning behind the bull market rally looked to be called into question at some point. However, there are signs of recovery in sight with the Nikkei 225 posting an almost 5% increase on Monday to bring about a strengthening picture to the global markets.

The Nikkei 225 has been seen to act as a new found influence upon trading within the European markets in recent times owing to its new found importance in the global growth story. A typically US-centric marketplace has now been gazumped by ongoing affairs in the Japanese economy where European and American investors have developed increasingly Asian focused portfolios owing to the opportunity for significant market gains. This allows foreign investors the opportunity to gain from the devaluation of the yen, without the requirement of change their money into the yen, thus avoiding the downfall of the ongoing weakening currency framework. Subsequently, the markets are more often than not looking towards Japan as a source of guidance for equity movement, albeit on a different scale.

The rise of the Nikkei 225 overnight was in part due to the improvement seen in GDP figures released early into the Asian session, pointing to better than expected growth for the region. The improvement in the Q1 GDP figure saw a final revision push the figure from 0.9% to 1% despite expectations of no change. Likewise, in an annualised Q1 figure, the economy far exceeded expectations, rising from to 4.1%, despite expectation of a significantly lower figure of 3.5%. Overall this helped provide evidence that Shinzo Abe’s Abenomic policies are having an tangible impact upon the economy and that there is perhaps more credence given to the rally in equities within the economy given the longer term outlook provided by a successful policy set.

This weekend saw China release yet more data outside of market hours, with the disclosure of key trade balance figures, allowing an insight into the development of international trade within the world’s second largest economy. Much of the interest in this figure came in the form of ongoing adjustments expected as a result of the crackdown within China on fake invoicing which has previously over-inflated export figures. Zhang Zhiwei, chief economist at Nomura Holdings Inc, predicted that the growth of exports would subsequently return to the ‘real trend, which is single digits’, and this subsequently was the case when the figures were released on Saturday. The reduction in export growth amounted to a reduction to the lowest rate in 11 months, bringing into light that in reality, the Chinese growth story is a lot more fragile than has previously been proposed.

However, the overall trade balance figure improved somewhat, rising from 18.16 billion to 20.40 billion for the month of May. This was thanks in a large part to the deterioration of import growth, falling drastically from 16.8% to a -0.3% contraction. Taken from the Chinese point of view, this may seem beneficial and allows the belief of increasing self-sufficient within the economy. However, taken from the standpoint of economies such as Australia which is largely reliant upon China for economic growth and stability, this figure spells out further trouble. It stands to reason that in good times, China will consume both domestically and internationally in large quantities. However, in times of slowdown, the associated devaluation of the yuan along with lowered expectations will reduce the propensity to invest for both Chinese firms and individuals.

The Spanish economic minister announced that he expects the economy to perform significantly better than market forecasts had previously speculated within Q2. The Spanish economy has been an ongoing worry within the Eurozone and thus this comes as a welcome boost to the single currency. This follows on from ECB comments over the weekend speculating that the Eurozone is now over its crisis, moving into a phase of growth rather than the previous austerity based stance.

US markets are expected to open higher, with the S&P500 +2 points and DJIA +15.5 points.
 
UK Opening Call from Alpari UK on 11 June 2013

Lift in US proves temporary after BoJ leads markets lower

Today’s UK opening call provides an update on:

• US credit upgrade from S&P sends stocks higher yesterday
• Fed’s Bullard indicates inflation may impact upon QE stance
• BoJ keeps interest rates steady amid heightened speculation
• UK industrial and manufacturing production expected to slow
• German constitutional court brings validity of OMT into question

European markets are expected to open lower today, off the back of a strong day for global indices associated with key events in the US session last night. However, the BoJ has since brought about a lowered expectation for the day as the Nikkei 225 once again leads the way in global indices. This comes off the back of yesterday's gains, brought about off the back of increased confidence provided by a strong rebound in the Japanese Nikkei 225 along with strong non-farm payroll figures last week. However, the validity of any move to the upside always looks set to be questioned for some time yet after a number of the key equities indices and forex pairs have broken key support trend-lines, bringing into question the notion that we may have begun a newly established bear market. Traders are looking for the ability to break above previous highs as an indicator that this has been a temporary market correction owing to an overheated bull market throughout 2013.

The ability to establish new highs would likely be the catalyst within markets for a strong continuation of the recent bull market seen over recent months. However, should we see a push back to the downside at any level below previous highs, the market could perceive this as the establishment of a downtrend owing to lower lows and lower highs, sparking widespread sell-off in global markets. This points to the fragile and unpredictable nature of the markets over the coming period.

Credit rating agency Standard and Poor has raised the credit outlook for the US economy yesterday, bringing the equities markets higher in late trade. The shift from negative to stable provided a significant boost to the economy following on from Friday’s better than expected unemployment data. Back in August 2011, S&P downgraded the US rating grade to AA+ from the highly coveted AA+ owing to ongoing weaknesses within the American powerhouse. However, this move to stability has brought about a reduced perception of deterioration and thus a lowered likeliness of further downgrades.

This move has followed on from a notable period for the US, with 2.5% growth, a recovering jobs market, near record low bond yields and S&P500 near all-time highs, there is increasingly a case to be made for US economic strength. However, this move will be treated with caution amongst the trading community owing to the perceived deterioration in influence and accuracy within the major credit rating. The ability of companies to apparently ‘pay off’ credit agencies to achieve AAA ratings on sub-prime mortgage laden CDO instruments prior to the 2008 crash appears to have tarnished their reputations and ability to deliver accurate market oversight and auditing.

Looking to Asia, the BoJ delivered the latest interest rate decision today amid testing market environments. The volatility seen since the May meeting has brought about an increasingly unstable economic framework for the members to deliberate. The simultaneous loss of value within the Nikkei 225 along with significant appreciation of the yen were unlikely to be enough to bring about further measures by the BoJ, which has decided to continue apace with an inflation rate of 0.1% and keeping asset purchases steady. The recent rhetoric emanating from within the BoJ has been pointing towards finding measures to slow down and stabilise the sharp shocks within the system associated with such drastic monetary measures. Subsequently it made little sense to enact further monetary stimulus as a means to address heightened volatility within the marketplace.

In the end, the announcement from the BoJ remained on track with the May meeting, deciding to retain plan for JPY60-70 trillion annual rise in the monetary base and discussing the 2% inflation target which has recently become a bone of contention within Japan. Ultimately the decision was made to continue with current monetary policy apace until the 2% inflation target has been reached, thus diminishing the likeliness that further increases are down the line. The Nikkei 225 has subsequently fallen almost -200 points in response to this largely unchanged stance.

UK industrial and manufacturing production figures are due out today, fresh from last week’s strong PMI figures. The release of three better than expected PMI figures last week has provided the UK economy with an increasingly positive picture going forward, with some reacting by upwardly revising growth figures in response. However, owing to the lagging nature of these releases, there is a disconnect between recent perception and today’s releases.

Both these figures are expected to show a reduction in production growth, with manufacturing production expected to fall from 1.1% to -0.3% compared with March. Similarly, industrial production is widely expected to disappoint by moving back to parity from 0.7% growth in March. Overall, this figure has the propensity to move significantly into and out of growth on a monthly occasion and thus despite the positive outlook resulting from last week’s PMI figures, there is a high likeliness of disappointment today.

The German constitutional court (Karlsruhe court) meets today for the first of two day’s debate in relation to the validity of the ECB’s planned SMP scheme involving sterilised OMT’s. A Bundesbank report released in April noted that “it is not the duty of the ECB to rescue states in crisis”, thus bringing into question the legal validity behind such programmes under the ECB mandate. Speculation has been rife as to the possibility of this discussion to mark the beginning of the end for the single currency as these programmes form the basis upon which many of the most indebted nations can rely upon for investor confidence. That being said, the fallout from the Cypriot crisis provided clear evidence that despite the existence of this mechanism, it does not always represent the initial backstop to any crisis.

Representing the Bundesbank will be current President Jens Weidmann for the hearing, while the role of ECB representative falls upon the shoulders of ECB board member Jörg Asmussen. Market expectations are mixed, yet on the whole I think it likely that an inability to come to a certain conclusion could push the vote back to the ECB who would be more likely to pass the SMP programme through as legitimate.

Markets are expected to to open lower today, with the FTSE100 -18, CAC -12 and DAX -33 points.

EURUSD

Some indecision being shows on the eurodollar currently after last week’s push to the upside. The pair have found resistance derived from a long term trend-line dating back to September 2012 which has turned from support into resistance. The creation of a new multiple month high on Thursday brings about a more bullish outlook for the pair, however there is a clear slowdown in momentum and thus we could see a push lower to find a new level of support. The stochastic and CCI indicators point to potential downside momentum, however should we see a push above the ascending trend-line, a target of 1.371 and subsequently 1.383 would come into play.
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The weekly chart provides a clear picture of our longer term target, derived from the 61.8 Fibonacci retracement (May 2011 high – July 2012 low), however any further movement to the upside is also likely to come into resistance around 1.349, owing to the existence of the 200 week moving average and 50.0 retracement. A move back up to 1.383 would represent a continuation of the uptrend and subsequently could pave the way for a move back to 1.49 in the lang term.
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GBPUSD

Cable is also showing some signs of indecision after the substantial move to the upside last week. Having reached its target price level by tagging the channel and 61.8 retracement, there was always likely to be some profit taking. Subsequently, this pair have the potential to move lower back towards support found around 1.536 or else any further movement to the upside is likely to run into resistance around 1.57.
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The weekly chart provides a clear indication of where further resistance is likely to be found, with two long term trend-lines highlighting both the 1.579 and 1.628 marking the convergence levels of descending lines of resistance along with key Fibonacci extension levels. The stochastic indicator continues to point upwards, indicating the current directional bias for the coming period.
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USDJPY

The existence of a long term ascending trend-line has overwhelmingly been seen as a key constituent to the bull market in the USDJPY in recent times, where the market expectations that it will minimise any downside momentum has made it a self fulfilling prophesy. However, the break below this key support level last Thursday has since turned the foot on the other shoe, with previous support now showing signs of resistance. Today has seen the price action move lower off the back of initial upside movement and thus the ability of this pair to move back above this key trend-line is now called into question. As a result of this shift, along with unchanged BoJ policy, the outlook has become increasingly bearish, with the pair looking set to retest 97.4 prior to a potential move lower. The establishment of a lower low in the coming period would be highly significant for the pair and thus that 95.0 level is key to the future of the dollar yen. However for the moment given we have bullish stochastic and CCI indicators, my bias is somewhat bearish/neutral and I suspect we may see some more sideways action in the coming days.
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Taking a look at the weekly chart, the picture is similar, with the weekly candle finding resistance on that long term ascending trend-line. The indicators are more bearish and thus point to a move back towards 95.0 in the coming period.
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US Opening Call from Alpari UK on 11 June 2013

Markets tumble as BoJ fail to provide support despite volatility

Today’s US opening call provides an update on:

* Global markets continue to tumble despite temporary respite
* Japan keep monetary policy unchanged despite market pressure
* German court hearing threatens ECB OMT programme
* UK industrial and manufacturing production slows despite beating expectations


The European markets are trading significantly lower today, driven in large part by the disappointment associated with a BoJ decision to keep monetary stimulus stable despite ongoing market volatility. The positive momentum within the markets yesterday provided some hope that perhaps we had seen the worst of the recent pullback. However, today provides an indication that perhaps we are only just seeing the beginning after many of the key markets broken below key ascending trend-line in existence since the beginning of this bull market around November 2012.

The decision by the BoJ to keep monetary policy unchanged overnight provided markets with little impetus to continue yesterday’s rally. Much like last month’s meeting, the central bank disappointed investors by failing to provide any new stimulus, verbal or literal, for the markets to utilise as a means to regain faith in the Nikkei. Subsequently, European and US stocks are expected to follow the lead lower, compounding the troubles seen recently in the markets. Given the size and scope of this reaction, it is clear that investors have changed tact from one in which the default reaction is to buy to one in which every market event is analysed from a more sceptical point of view. Subsequently, the ability of markets to rally on good news is limited owing to the new found bias towards opening short positions on each spike. The announcement that the BoJ is set to remain committed to the current 0.1% interest rate and JPY60-70 trillion annual assert purchases means that the markets are lost at sea without a lifeboat for at least a further month in Japan.

Today marks the first of two days in which the German constitutional court debates the validity of the OMT bond buying programme within the European framework. The as yet unused policy was created as a means to reduce the borrowing costs of highly indebted countries in crisis as this allowed for greater sales to create much needed liquidity in such countries. This challenge from the Karlsruhe court has the potential to be highly crucial in the existence of both the OMT programme and the eurozone as a whole.

The necessity of this bond buying scheme as a backstop measure to secure economies in trouble is seen as more of a precautionary measure than literal, as was seen in the Cypriot bail-in. However, should the German court manage to disprove the validity of the OMT programme, this could spell danger for the eurozone given it would represent the reduction of financial backstops for any future crisis. That being said, I do not expect too much change from these hearings and like indecision could lead to the debate being transferred to the ECB courts, which would be more likely to pass the policy as legitimate.

The UK released industrial and manufacturing production figures earlier this morning, with both the month-on-month figures outperforming expectations. That being said, the manufacturing production figure, despite beating market forecasts, still showed a reduction from 1.1% in March to 0.2% in April. This is particularly disappointing for the markets given the strong perception of manufacturing provided by the PMI figure last week. Similarly, the industrial production figure also outperformed forecasts, coming in at 0.1%, however this represents a marked reduction from march’s 1.1% improvement. Overall this has not helped the markets given the negative sentiment currently, however, given these are April figures, it is somewhat lessened in impact due to the better perception of May from last week’s PMI figures.

US markets are expected to open lower, with the S&P500 -14 points and DJIA -108 points.
 
UK Opening Call from Alpari UK on 12 June 2013

German court hearing brings eurozone back into focus

Today’s UK opening call provides an update on:

• Eurozone back in the spotlight as German courts discuss OMT validity
• ECB’s Asmussen and Weidmann go head to head over bond buying programme
• UK GDP estimates point to further improvement in the economic outlook
• UK employment data expected to show further improvement

The eurozone has come back into the spotlight this week, with today marking the conclusion of discussions within the German constitutional court regarding the validity of the OMT programme under the legal framework of the ECB. The importance of the ECB’s OMT policy should not be underestimated owing to its role as the core backstop underpinning all investor confidence within the eurozone. The role of the OMT is to provide increased demand for sovereign bond through ‘outright purchases’. The upshot of which would be lower yields and subsequently increased confidence within global markets owing to the negative correlation between yields and confidence.

Yesterday’s debate brought about an initial defence of the OMT programme from German ECB member Jörg Asmussen, followed by an account from Jens Weidmann who represents the belief that this programme is untenable in its current format. German speculation regarding the scale and scope of the OMT programme has been a core point of contention for the Bundesbank. However, this was addressed in detail by Asmussen, who declared the need for unlimited potential bond-buying as a means to increase market confidence that the ECB will defend price stability. Asmussen followed on to discuss the potential for inflationary pressures resulting from the programme, insisting that OMT’s are inflation neutral owing to the ability to ‘sterilise’ any bond purchases. Finally, in a nod to markets, Asmussen declared that ECB members would not vote in favour of any further haircuts in the future. However, this is somewhat invalidated by the fact that should other creditors choose to do the same.

Later in the session, it was the turn of Jens Weidmann to put forward the case against the current OMT policy. In an attack on the current programme, Weidmann argued that the bond market should be seen in a disciplinary context, bringing about change from member states in distress. The ability to operate ‘as normal’ within an economic crisis has the potential to prologue unwanted behaviour. The ability of members to fully understand how they are viewed by creditors allows for a more proactive response to crisis than would otherwise be the case under the OMT programme.

Ultimately, the overall validity of the OMT policy is unlikely to come under any form of sustained credible attack, however, the upshot of this debate is likely to come in the form of a potential shift in the principles and conditions currently in place. More specifically, the ability of any ECB member to partake in the scheme without conditionality is clearly key and is likely to be the casualty should any tangible measures be taken from this meeting.

UK GDP estimates from the NIESR brought forward a strong Q2 estimates of 0.6%, following on from the official rate of 03.% already declared earlier in the year. The importance of the GDP figure is in no doubt crucial to market perception of progression within the UK recovery story and thus the strong estimate was a welcome figure going forward. Last week’s services PMI figure was accompanied by an announcement by the CBI that their Q2 GDP estimate was revised upwards to 0.5%. At the same time, JP Morgan took a lead from these PMI figures, disclosing a forward looking view of an estimated 1% rise in Q2. Subsequently, while the NIESR forecast does not provide an outlandish prediction to move markets, we are taking note of yet another expectation of higher GDP growth going forward.

Looking ahead, the UK is set to release key unemployment figures later today, bringing further clarity to the UK growth story. At the forefront of proceedings, the claimant count change is expected to show a further reduction in claimants, albeit at a decreased rate. An estimated reduction of 6,800 claimants are expected to be announced, representing the seventh consecutive monthly reduction. The importance of these leading employment figures cannot be underestimated, with the US non-farm payroll figure providing a prime example. This figure has outperformed expectations in 9 out of 12 occasions within the last year, bringing into light a clear potential for a market surprise which could see the figure fall further. Most notably, the markets will be looking to see if the figure can break below the April figure of -7,300 for a significant impact.

Likewise, the UK is releasing their headline unemployment rate today, fresh off the back of last week’s reduction from 7.9% to 7.8%. The continuous reduction in claimants is having a tangible impact upon the core rate, where market predictions of an unchanged figure has been proved conservative time and again. Subsequently there is a high likeliness that this figure will outperform forecasts, falling yet again to 7.7% in a boost to the UK economy.

European markets are expecting to open lower today, with the FTSE100 -21, CAC -16 and DAX -35 points.

EURUSD

The upside momentum continued apace yesterday, bringing the eurodollar back up towards a key trend-line which has provided both support and resistance dating back to September 2012. However, there are signs that we may find a little further resistance at this point today despite a clear uptrend for the pair. The daily stochastic and CCI are both around overbought territory and the strength of this current move to the upside seems to be losing strength. Subsequently there is a high likeliness of a move back to the downside, with 1.315 as a likely level of support owing to the existence of the 38.2 Fibonacci retracement.
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On the weekly chart we gain a greater sense of the target for this pair without necessarily having to account for the intraday price action. The ultimate target for this current move comes at 1.383, which represents a symmetrical rally to those beginning in August and November 2012. This is also where the 61.8 retracement lies, along with previous support.
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GBPUSD

Cable traded higher yesterday, providing the clarification of a new higher high given the fact that the candle closed above the 1.56 highs from May. The price currently rests upon the 200 day moving average and just like the eurodollar, there are signs that we potentially could see a period of consolidation given the size and strength of the recent upside momentum. Should we se downside momentum, the first level of support would be likely to exist around the 1.55 level given this represents the 50.0 Fibonacci retracement (2012 high to 2013 low) along with the 61.8 extension of the early 2013 uptrend and consolidation. Any further movement to the upside would be likely to find resistance around 1.57 which represents a cluster of previous support, resistance, the 61.8 retracement and the top of a equidistant channel of this move.
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The weekly chart provides a picture of the longer term targets, with descending trend-lines dating back to May 2011 coming into play. These both correspond with the Fibonacci extension levels and subsequently I would be looking for a first target of 1.579 (100.0 extension) and a secondary longer term target of 1.628 (161.8 extension). The stochastic and CCI indicators point towards further upside momentum in the coming period which would support a move towards these levels.
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USDJPY

Thursday’s break below a key long term trend-line provided the markets with a feeling that we are likely to be in a downtrend over the coming period, and the chart is beginning to take shape to that effect. The previous provision of key support from this trend-line has now turned into resistance, instigating a move lower. The price action is seeking to confirm further resistance around the 97 levels owing to previous support, however this current consolidation looks to be merely a case of disbelief within the bulls. That being said, I believe given inactivity on the part of the BoJ yesterday, we are likely to see continued losses for the pair, with a longer term target of 90, corresponding with the 50.0 Fibonacci retracement of the entire uptrend since November 2012.
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Looking at the weekly chart, support is expected at 95, which represents previous historical support (2008) and resistance (2010) along with recent support. The weekly chart gives a clear indication of the strength of respect for this level and the ascending trend-line from 2012. The stochastic and CI indicators both point to further downside and thus my bias is for a downtrend towards 90.
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US Opening Call from Alpari UK on 12 June 2013

UK unemployment provides boost ahead of OMT hearing

Today’s US opening call provides an update on:

* Markets mixed amid ongoing volatility
* UK unemployment figures beat expectations
* Discussion over validity of OMT programme comes to a head
* Eurozone industrial production rate rises despite negative predictions

European markets are mixed this morning in a nod to the current uncertainty surrounding global indices. The importance of a strong performance over the coming period should not be understated for some key markets, as a devaluation following the broken key technical levels seen last week will greatly increase the likeliness of a stock market collapse for the coming months. Following double digit losses seen over recent weeks, the ability of markets to recover to reach new highs will be paramount in trader perception of whether we are now set to see a prolonged bear market or a continuation of the recent market strength. Should the markets suffer significant losses within the coming week without reaching previous highs, the market perception would be that a lower high has been formed; the prerequisite for a reversal in the markets. Subsequently, a shift below previous lows of last week is likely to be treated as confirmation of a move to the downside for many indices.

Most notably of these is the Japanese Nikkei 225, which fell over 23% from its high to the low of 12324 set last week. This stark outlook is shared by many, however PIMCO took it a step further today, indicating that they believe there to be a 60% change of global recession within the next 3-5 years. However, given the current fragility of jobs, housing and growth, a stock market crash could significantly damage the ability of many to invest and participate in the way that is required for the global economy to grow.

UK unemployment figures released this morning managed to beat expectations in a boost to the markets following a particularly strong period for the UK economy. Better than expected GDP, PMI and now unemployment figures point to a strong economy which is outperforming expectations on all accounts. Subsequently, this positive economic activity is likely to feed through to the GDP figure for Q2 as was seen from recent revisions from the NIESR (0.6%), CBI (0.5%) and JP Morgan (1%). Today’s claimant count figure measures the change in people claiming unemployment benefits during the month of May. It showed that 8,600 fewer claimants were seen in comparison to April, outperforming the market expectations of 6,800; the 10th time within the last 12 months that estimates have been beaten by this figure.

Today sees the German constitutional court resume the debate between ECB member Jörg Asmussen and Bundesbank president Jens Weidmann over the validity of the ECB’s controversial Outright Monetary Transactions (OMT). The ECB bond buying programme has yet to be utilised, however the argument centres around the potential behavioural by-products from the system within both governments and markets. Asmussen, in his role defender of the current system believes that the value of the system is in its role as core confidence backstop for beleaguered nations as a means to reduce the yields of sovereign bonds, thus reducing the likeliness of further crisis owing to a lack of confidence and the subsequent reduction in available liquidity at reasonable rates.

However, in the eyes of Weidmann, this somewhat seems to defeat the purpose of bond yields, which traditionally are seen as a gauge to the quality of the issuer. The ability to artificially instill confidence regardless of the risk profile attached to the underlying instrument allows for somewhat misguided belief that austerity measures such as those seen recently throughout eurozone nations may not be necessary despite key economic indicators that say otherwise.

The conclusion of this debate is expected to be seen today, with any decision against the OMT system likely to be taken negatively within European markets. The primary responsibility of the OMT is to allow countries the space and time to make necessary measures without market pressures and subsequently any move to undermine the programme would be seen as critical amongst markets and ECB members alike. There is little expectation of a conclusion that will invalidate the programme, however should any amendments be proposed, the likely outcome would be to impose specific criteria for members to be valid for OMTs going forward. That being said the most likely outcome is either to rule the programme legitimate, or else any indecision could lead to further debate within the ECB which would be more likely to pass the OMTs as legally sound.

Continuing in the eurozone, industrial production figures released today managed to beat expectations, boosting prospects after last week’s strong Italian and Spanish PMI figures. The figure showed a 0.4% increase month on month for April. The movement away from austerity and towards growth for the countries within the single currency was always going to take some time to gain traction, however it is clear that there has been a slowdown in the downturn for some of the key players. Subsequently this provides a tentative boost going forward.

US markets are expected to open higher, with the S&P500 +10 points at 1636 and DJIA to open + 89 points at 15216.

Read the full report at Alpari News Room​
 
Daily Market Update - 12 June 2013 - Alpari UK

Chief Market analyst James Hughes talks about today's UK unemployment figures as well as the impressive eurozone industrial output reading. He also takes a look at some key technical levels on GBPUSD charts.

 
UK Opening Call from Alpari UK on 13 June 2013

Asian losses pave way for dissapointing European session

Today’s UK opening call provides an update on:

• Markets to open lower as the Nikkei 225 tumbles yet again
• Australia back in the limelight after employment data boost
• ECB policy under fire in Germany
• New Zealand interest rates remain as expected
• US retail sales figure predicted to improve for May

Global markets are expected to trade lower again today, after the Nikkei 225 fell over 5% in the Asian session. The appreciation of the yen along with failure to supply further stimulus from the BoJ has provided markets with yet another reason to lead the markets into the red. This comes despite strong figures in Australia, the eurozone and UK within the past 24 hours. Ongoing anxiety within the markets ensure that despite indications of resurgent growth within many of the major economies, much of this appears to have been factored in through the recent upside momentum of the global indices. The increased signals coming out of the Fed, BoE and ECB are implying an ever lessening reliance upon monetary easing as stronger indicators provide an increasingly bright outlook. Unfortunately, the market rally seen throughout late 2012 and early 2013 was driven by poor performance and subsequent central bank asset purchases.

Much like an international ponzi scheme, the ability of a central bank to print money addresses what should be an alarmingly fragile economic outlook, instead turning bears into bulls, driving confidence higher. However, the market rally seems to be unable to self sustain without the direction of the central bank, and subsequently any sign of reduced QE is seen as a sign of an impending downturn for many in the markets.

Australia received a much needed boost over night, with the release of key unemployment data. After recent weaknesses in the key commodity currency, along with a tangible slowdown in China, the importance of this release could not be overestimated. However, in the key employment change figure, a significant drop was lessened somewhat but avoiding an expected negative figure. The figure fell from 45k to 1.1k, yet this represents an improvement of almost 10,000 workers from the market expectation of -9.8k. Also, in an unexpected move, the headline rate of unemployment fell from a revised figure of 5.6% to 5.5%. Unfortunately despite the initial boost seen in the markets, the AUD has since pared much of its gains.

Yesterday marked the final day of proceedings at the German constitutional court in a debate to allay fears within the Bundesbank that the outright monetary purchase scheme goes against the ECB mandate. The power of the court is limited in relation to any amendments of the the scheme, given the fact that the OMT programme is enshrined in EU law. However, the Bundesbank pressed forward in an attempt to prove the system goes against the core ECB mandate to promote price stability by keeping inflation below but close to 2% in the medium term. Ultimately, the centralised feature of Bundesbank president Jens Weidmann’s arguement was doubts as whether the ability to enact unlimited ‘fire-power’ within the realms of the OMT programme is consistant with the ECB mandate.

In response, ECB member Jorg Asmussen announced that the Bundesbank should “be careful what they wish for”, in a nod to the fact that in order to make amendments to the EU treaty as required to alter the current OMT framework, the potential for additional changes may occur. The ECB was originally modelled upon the Bundesbank, a move which no doubt suits the German hierarchy. However, by opening the eurozone to vote upon amendments to core treaties within the ECB, this would create opportunities for marginalised nations to propose further changes to the system to better facilitate their economic recovery.

Ultimately, the German economy benefits overwhelmingly from the existence of the single currency block and subsequently the health and prosperity of the eurozone should be of paramount importance to German policymakers. The decision to potentially undermine the single regulatory policy underpinning the recent stability within the region could be ill-founded. However, the ultimate decision taken from this meeting will likely be for a potential discussion within the higher ECB courts to impart greater restrictions and limits upon the utilisation of the OMT programme. As Asmussen said yesterday, the “whatever it takes” standpoint taken by Mario Draghi remains true today and it is widely perceived that the OMT programme has been core to ensuring the single currency still exists.

The RBNZ announced the latest interest rate decision overnight, with the central bank deciding to keep the headline rate at 2.50% for the coming period. The decision was largely expected given the strong devaluation of the kiwi over recent weeks, however the announcement provides markets with a reminder of the innate strength of the New Zealand dollar as a carry trade should the market turn back into positive territory in the coming period. However, despite the decision not to use traditional methods of monetary loosening as a means to bring about currency devaluation, statements from the central bank indicate that the currency is being actively sold as a means to bring it in line with the desired levels. The decision to declare the underlying activities of the RBNZ within the context of currency devaluation feeds into the market expectations owing to the increased anticipation of continued devaluation.

Looking forward, the US will release their notable retail sales figures later in the day, with markets expecting to see an improvement in the rate of sales from 0.1% to 0.4% for May. A higher rate of growth within this figure on a monthly on month basis is a crucial indicator of improving economic health. Subsequently, markets are likely to perceive a figure of 0.4% or above as indicative of strong pickup in economic activity. The importance of retail sales figures should not be underestimated amongst analysts, who on the whole see it for the overarching indicator that it is. Positive connotations from a strong retail sales figure stretch across the range of indicators, with improved spending by consumers bringing about a perception of higher expectations with regards to employment, wages, inflation and overall economic outlook. Subsequently, the retail sales figure is not only a quantitative figure but also a qualitative one owing to the impact is has upon perceived consumer sentiment within the economy.

European markets are expected to open lower, with the FTSE100 -74 points, CAC -40 points and the DAX -90 points.

EURUSD

A notable rise in the eurodollar today brings about an renewed bullish outlook for the pair, with price action breaking above an ascending trend-line from February along with a key Fibonacci level. The recent rise in this pair has typically been capped somewhat by an ascending trend-line, which was broken in yesterday’s session. The ability to do this without any form of retracement shows there is still strong upside movement left in the pair. The price action has found support on the 61.8 retracement level at 1.334 and subsequently we are looking for a further move higher today.
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The weekly chart provides target levels, with a short term target of 1.349, which represents the convergence of both the 200 day moving average and the 50.0 Fibonacci retracement of 2011 high to 2012 low. However, ultimately we are seeking the creation of a higher high to provide evidence of a clear uptrend. This would bring about a target of 1.383 to post a identical value rise to the previous two uptrends in 2012 and 2013.
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GBPUSD

A similar picture to the eurodollar, with a substantial rise over recent weeks. However, this pair has yet to break above resistance, currently resting around both the 61.8 retracement of the late 2012/early 2013 downtrend, and the key 1.57 level. An ascending channel provides further guidance as to resistance around this point and subsequently the ability to break above this level would be key for both the long and short term future of this pair. Both the stochastic and CCI indicators point to an overbought market. However, this should be watch carefully as a pullback could be in sight, yet given the lead taken by the euro, a break above these levels seem increasingly likely.
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The weekly chart provides targets for the pair, where the short term upside primary target comes in the form of both an ascending trendline and 100 Fibonacci extension at 1.579. Similarly, the longer term and ultimate upside target would be a move to the 1.62 region, which is likely to provide significant resistance should we see a move to that level owing to the existence of the 161.8 extension and key long term descending trend-line. The stochastic and CCI indicators both point to further upside and given the ongoing weaknesses in the global economy, it would not be unlikely to see this occur.
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USDJPY

Further losses in the dollar yen this morning continues to portray a highly bearish picture for the pair, which is looking for potential support at the 38.2 Fibonacci retracement of the full 2012/13 bull market around the 93.57 region. However, there is clear downside momentum and thus any key support level can be broken fairly easily in such a strong trend. The stochastic has turned back to the downside and for now we expect further losses, with the next significant level of support coming at the 50.0 retracement should the upcoming support be broken.
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US Opening Call from Alpari UK on 13 June 2013

Markets tumble after investors go cold turkey

Today’s US opening call provides an update on:

  • Markets tumble after 6% Nikkei 225 loss
  • Australian employment figures provide welcome boost
  • US retail sales expected to show slowdown
  • Discussion over validity of OMT leads to call for changes to ECB mandate

The markets have suffered considerable losses again this morning, after the Nikkei 225 Japanese index plummeted over 6% during the night. The sharp contraction of the Asian markets were in part led by the appreciation of the yen, a leading indicator of whether the Abenomics policies hold true in the minds of investors. Since the inception of Shinzo Abe’s policy of widespread stimulus to bring about inflation and yen devaluation, the markets have been in a flurry of activity based often upon simply rhetoric. However, it seems the foreplay was potentially the best part with Abe, whom once in power found that many of his policies had already been priced into expectations. Subsequently the clamour for additional stimulus from the BoJ has left Abe with a highly expectant audience and very little left he can do to appease the markets. The increased volatility in the markets over the recent period highlights the fragility of recent stock market highs, based largely upon easing measures and very little strong economic basis.

One piece of positive news out this morning came in the form of Australian employment figures, which provided much needed respite for the recently distressed nation. The ability of the commodity driven economy to show any sign of improvement has come into question recently after indicator after indicator has painted an increasingly bleak picture for the region. However, the employment change figure for May defied expectations of a 9,800 reduction, instead rising a modest 1,100 for the month. This stands in stark contrast to the 24,000 average increase over the past four months, yet the ability to continue growing, albeit at a lessened pace, is a sign that the economy is down but not out. In addition to this, the unemployment rate also defied forecasters, remaining at 5.5% despite expectations of a rise to 5.6%. One thing to note is that this release also came with a upward revision for April, bringing the previous month’s true figure from 5.5% to 5.6%. Subsequently, this represents a fall in unemployment despite it being a somewhat unorthodox one given the fact that it was an increase of April rather than the reduction in May that would have ideally been the case.

Looking ahead, the US retail sales figure is released later today, bringing into focus a core element of the US economy in the form of consumer sentiment. Retail sales are a crucial strategic release owing to the fact that they reflect both the current state of consumers within the country, but also their future expectations of economic prosperity. Subsequently, the obvious quantitative nature of the release is also combined with a qualitative element of consumer sentiment both now and in the future. The market expectation is for an improvement in the figure, rising 0.4% in comparison to a 0.1% rise in April. In general the markets tend to only respond significantly should this release come in well above or below expectations and subsequently a rise above 1% or fall into negative territory would be the type of signal traders are looking for.

The discussion over the ECB OMT programme reached a crescendo yesterday, with Bundesbank president Jens Weidmann announcing that he believes the programme should be amended in EU law as a means to implement limits upon the currently abstract programme of bond buying. The OMT programme was designed and implemented under Mario Draghi’s leadership as a means to provide beleaguered eurozone members with financial backing to alleviate fears within the bond market of potential default. The success of this programme can be seen within the bond yields throughout the region, which have been substantially subdued owing to the unlimited nature of the programme. No conclusion has been reached as to whether the scheme contravened article 123 of the EU treaty, however given that Germany are widely seen as the most beneficial state from eurozone prosperity, a move to undermine ongoing growth seems ill advised. Should any decision be made against the programme, it this would subsequently lead to further challenges within the EU courts given the Karlsruhe have little power upon ECB policy.

US markets are expected to follow Asian and European markets lower, with the S&P500 expected to open -8.5 points at 1604 and DJIA – 70 points at 14923.
 
UK Opening Call from Alpari UK on 14 June 2013

Stocks expected to rise despite warning signs from the BoJ

Today’s UK opening call provides an update on:
• Markets expected to rise after Nikkei 225 pares some of yesterday’s losses
• UoM consumer sentiment outlook expected to improve
• Japanese minutes provide insight into JGB's and destabilisation concerns
• Canadian manufacturing sales figure anticipated to rise
• ECB big guns come out in defence of OMT

European markets are expecting to trade higher today, off the back of a strong session in Asia. The Nikkei 225 managed to pare much of yesterday’s losses, rising over 3% despite the BoJ minutes indicating an increasingly uncertain stance regarding QE going forward. The relationship between Asian and European markets has grown in strength over recent month's where strength in Japan is typically translated into a subsequent rise in the likes of the FTSE100, CAC and DAX, albeit on a smaller scale. Subsequently we could be in for another 1% rise in those indices despite futures reflecting around a 50 basis points rise in those indices.

Looking ahead, a somewhat mixed day in store with many of the main events likely to have little impact upon the markets. The one particularly notable event comes in the form of the US consumer sentiment figure from the University of Michigan due late in the European session. The importance of the UoM sentiment figure should not be underestimated owing to the fact that it incorporates both current perceptions and future expectations of economic prosperity. On the whole, market analysts expect to see an uptick in this figure, with a rise to 84.9 likely, representing an 0.4 increase from May. The figure has had the tendency to under-perform somewhat over recent periods and subsequently there is the potential for a somewhat disappointing figure. However, with yesterday’s strong retail sales figure, it is clear that US consumers are increasingly optimistic going forward and thus this is likely to be reflected in the UoM consumer sentiment figure later.

This morning, the Bank of Japan released minutes from a meeting that took place over May 21 to 22. The BoJ minutes provided evidence of ever increasing anxiety regarding the consequential effects seen within the markets to their current monetary policy stance. In particular, worries centered upon the volatility seen within Japanese government bonds (JGB). The ability to keep JGB yields low is imperative at high yields would lead to an increasingly large debt burden placed upon the government.

In the quest to achieve stable and low JGB yields, BoJ members discussed the potential for a limiting QE as a means to stabilise the market contrary to current communication which is destabilising for the markets. The ability to achieve 2% inflation solely through the use of continuous QE has brought about the expectation that the BoJ's QE programme will be long term. However, this early indication of a potential reduction in easing will come as a blow to the markets, where the Nikkei lost 1%in the minutes following the announcement of these minutes. Ultimately, the BoJ has created a scenario where markets expect unlimited, long term and increasing amounts of QE to prop up the Nikkei and yen while the BoJ already discuss tapering as a result of unforeseen consequences of their actions on JGB's. Something has to give and this is likely to be further loss of confidence within the Abenomics stimulus programme.

The Canadian economy is due to release the April manufacturing sales figure later today, with markets expecting a shift out of contraction and into positive growth on a month on month basis. Experiences of this release have been mixed in recent months, habitually shifting into and out of expansion. The strength of the Canadian economy has never come under significant pressure given the way in which the BoC led by Mark Carney have approached the post-2008 period. However, speculation has been mounting as to the potential of this commodity reliant economy to begin showing cracks given the fall in export prices. Subsequently, the ability for Canada to continue to perform strongly given the changing conditions within the global economy is key to understanding whether pessimistic expectations placed upon a post-Carney Canada can be justified.

The big guns came out in defence of the ECB OMT bond buying programme yesterday in response to the attack launched by the Bundesbank through the German constitutional court hearing this week. The ability of Jorg Asmussen to defend the current critical has been tested by Jens Weidmann, who called the programme unconstitutional and abstract programme which fails to fit within the ECB mandate guided by the 123 treaty. However, the importance of the scheme should come under no doubt, as the OMT programme is by far and away the most stabilising force upon bond yields during the five years of crisis in the Eurozone. And for this reason, ECB president Mario Draghi was drafted in for the encore, arguing that the programme is both necessary, effective and in line with the ECB mandate. Whether this decision to step in has an impact upon the court’s decision is unclear as the effectiveness of the programme was never in question. However, as we await a final decision from the court, it is worth noting that the German economy is by far the largest net recipient of economic prosperity in the eurozone and thus the decision to undermine one of the core tenements of stability within the region could amount to poisoning their own chalice.

EURUSD

Eurodollar managed to break through a key level of resistance yesterday and appears to now be retesting as new-found support in a bid to move towards creation of a new 19 month high. The upside momentum in the pair saw a key ascending trend-line broken for the first time since it’s inception in late February. This was also a level which represented the 61.8 Fibonacci retracement (February high to April low), thus making yesterday’s price action even more impressive. Today has begun in the red, with the pair retesting previous resistance in an attempt to establish support. Subsequently the key is as to whether the pair can maintain a price level above 1.334, which if done will be a sign for further upside movement using this level as a base.
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The weekly chart indicates upcoming targets in the form of the 200 week moving average and 50 retracement around 1.349 which is likely to provide significant resistance. However, the longer term target is for a rise back to 1.383, which would represent the creation of a new 19 month high. This is supported by the stochastic and CCI indicators which are both pointing upwards. However, both are around overbought territory and subsequently there is a chance for a pullback.
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GBPUSD

A similar story for cable, which is also trading marginally lower today off the back of a strong push through resistance yesterday. The existence of both the 61.8 retracement and ascending trend-line brought about an increased likeliness of a pullback. However, given the strength of yesterday’s move we are now into a position whereby the pair has the ability to establish both those levels as key support for a move higher.
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The weekly chart provides an overview of targets for the pair should we see continued upside momentum. The establishment of support around 1.57 would likely lead to a a push higher towards 1.5788, which represents the confluence of a 100.0 Fibonacci extension, 61.8 retracement and key descending trend-line. On a longer time frame, the secondary target is for a move back towards 1.624, which represents both the 161.8 extension and a key descending trend-line from 2011. Ultimately the key is for this pair to hold above 1.57 to validate our bullish outlook in the pair.
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USDJPY

Dollar yen has found clear support around the 95.0 level with initial candle wick touches paving the way for candlestick touches. The outlook for this pair remains bearish and the ability to push below this level despite subsequent retracement, is an indicator that the pair is likely to maintain price action below 95.0 in the near future. The subsequent level looks to be at 93.57, which represents the 23.6 retracement of the entire bull market from September 2012. Current support found at that level is likely to similarly become tested more regularly over the coming period. The stochastic and CCI indicators both are around oversold so we should be careful. However, given the increasingly unsupportive noises from the BoJ, markets are losing faith in yen strength, fast.
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The weekly chart provides clear evidence of respect for these two levels. However, most notably, within the weekly time-frame, the stochastic and CCI indicators both point towards approximately two more weeks over trading before reaching oversold levels for a move back towards the upside. Subsequently, the 50.0 retracement can be seen as a longer term target.
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US Opening Call from Alpari UK on 14 June 2013

Mixed markets complete week of uncertainty as volatility reigns supreme

Today’s US opening call provides an update on:

* European markets rally after volatile week, yet no end in sight for current turmoil
* BoJ minutes indicate uncertainty due to unexpected monetary side effects
* UoM consumer sentiment expected to show improving picture

A continued picture of uncertainty within the markets looks set to be completed with global indices rallying to recover some of the losses seen this week. In particular, the European stocks has seen an increasingly close correlation with Asian markets, with the US taking somewhat of an alternate path on a number of occasions (seen by the expected negative open in US indices today). The linkages between markets can be associated with a number of reasons, not least the growing importance of the Asian growth story as a key driver of both economic recovery and investor confidence.

The ability of markets to rally globally has been justified in part owing to the creation of excess liquidity within the global marketplace, coupled with the search for yields owing to long term low bond yields. However, this argument is in part nullified by the lack of volume seen throughout this rally, bringing the likeliness for volatility higher as the activity of each trader is smoothed to a lesser extent. What is evidently apparent is the increasing importance of expectations within the markets, heightened owing to the ever increasing quantitative easing seen globally.

The ability for markets to stabilise once more is highly dependent upon expectations. The ability for markets to gain a clear picture of whether their expectations should be bullish or bearish going forward provides a fundamental argument to a technical story. Subsequently where traders see a shift away from ‘secure’ expectations of growth driven by unlimited QE, towards one in which the future is less certain, it was always likely to bring about a negative response from the markets. Until the markets return the a scenario where expectations are more certain and stable, the current volatility is likely to become a continued characteristic of markets.

The certainty surrounding the Japanese economy suffered yet another blow over night, with the release of the BoJ minutes from their May 21-22 meeting. The one resounding aspect seen throughout the minutes what one of ill prepared members whom were dealing with unexpected consequences from previous policies. The ability of BoJ members to avoid the extreme stimulus measures endorsed by Shinzo Abe and Aso Taro was doubtful given that both leaders got into power on that exact ticket. However, the ability to foresee the side-effects of their actions is now coming into question after the yields associated with government debt spiked higher throughout April and May.

Most notable of the suggestions emenating from members of the BoJ, was the realisation that given the unlimited nature of current stimulus, this appears to be the core diver of recent volatility Subsequently, it is perhaps advisable to place limits upon QE as a means to stabilise the JGB market. It is this message of uncertainty surrounding the provision of monetary loosening going forward which has the ability to turn the markets lower still over the coming period.

The reaction seen from the markets was somewhat muted overall, with the Nikkei managing to shrug off the comments and climb almost 2% over the day, despite being over 3% up in earlier trading. However, this could be in some way attributed to the fact that since this meeting, the JGB market has become somewhat less volatile, returning to lower and more desirable levels.

UoM consumer sentiment figures are due out later today, with the market expectation pointing towards a moderate rise from 84.5 to 84.9 for the month of June. The importance of consumer sentiment is undeniable and has strong linkages with the retail sales growth seen yesterday. Seen together, both figures portray two sides to the same coin. Yesterday’s strong retail sales figure provides an picture of economic health within consumers, but also one of strong conviction towards future growth and expectations. Similarly, a strong consumer sentiment figure will go some way to explain why retail sales have been improving and provides expectations of further improvement in the sales figure for June.

US markets are expected to open lower, with the S&P500 -2 and DJIA -10 points.
 
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