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IronFX Daily Commentary | 17/08/15

The Big Picture17.08.2015, 10am • USD started the week on a sound footing The dollar is slowly recovering the “damage” following the PBoC surprise decision to devalue the yuan. The market gradually calms down, and will probably start focusing again on the likelihood of a Fed rate hike in September. With the clock ticking towards the crucial September meeting, the market currently has priced in a 50% chance of a rate hike. We have made the case that USD is data-driven and that significant positive US data surprises are now required to resume the USD-bullish trend and add to expectations of a September lift-off. • Eurozone finance ministers approved third Greek bailout deal Few hours after Greek parliament voted to approve the cash-for-reforms bailout deal on Friday, Eurozone finance ministers approved it as well. Unlike the first two bailouts however, IMF is not involved yet. The fund insists that the Eurozone countries should commit to a significant debt relief as a condition for joining the new agreement. Germany wants the IMF on board, but on the other hand, they are reluctant to offer the scale of debt forgiveness that the fund requires. Mainly to avoid similar demands from other rescued Eurozone economies. If there is no commitment from the IMF to participate in this aid package, then we will have a new situation and the possibility of debt relief to make Greek debt sustainable could fade out. • Japan’s economy shrinks in Q2 but less than expected Japan’s preliminary GDP data showed that the economy shrank 0.4% qoq in Q2 from +1.0% qoq in Q1, better than market expectations of -0.5% qoq. China’s economic slowdown however, and its impact on the global economy lessens the likelihood for a strong rebound in the final reading. In such case, there is a chance that the BoJ will have to take further stimulus measures in order to meet its targets when it reviews its long-term projections in October. Nikkei 225 edged a bit up on the better than expected data, while USD/JPY maintained its price range established in the last few days, below 125.00. • Today we have a relatively light calendar day. Eurozone’s trade surplus for June and Norway’s trade surplus for July are due to be released, but none of these indicators is particularly major market mover. • In the US, only secondary importance data are to be released. The Empire State manufacturing index is expected to show that business conditions for NY manufacturers have improved in August. NAHB housing market index for August is also coming out. • As for the rest of the week, on Tuesday, the RBA releases the minutes from its latest policy meeting. At that meeting, the Bank kept rates unchanged, as expected. The key point however was that it removed the line from its statement that “Further depreciation (of AUD) seems both likely and necessary, and instead said “The Australian dollar is adjusting to the significant declines in key commodity prices.” We will be looking in the minutes for any further clarification with regards to the Aussie’s level. Any hints from the Bank officials that the currency should depreciate further could be the catalyst for the next bearish leg in AUD/USD. • From the UK we get the CPI data for July and expectations are for the inflation rate to remain unchanged at 0%. At the recent Inflation Report, the MPC members seemed concerned between an increase in domestic price pressures as wages rise and a fall in import prices as commodity prices fall, and the pound strengthens. The Bank expects inflation to pick up a bit more slowly because of the second slump in global oil prices recently, therefore, a negative figure cannot be ruled out. • On Wednesday, the highlight of the day will be the minutes of the July FOMC meeting. At this meeting, the most important outcome was a very small change in the paragraph discussing the future path of rates. The statement changed “improvement” to “some improvement”. Adding the term “some” lowers the bar for what constitutes improvement and makes it easier for the Committee to justify a September tightening if they want to. If the minutes show that Fed officials are more likely to raise rates in September, this could prove USD-bullish. As for the indicators, we get US CPI data for July. • On Thursday, UK retail sales for July are forecast to have risen, a turnaround from the previous month. Last month, GBP plunged after the country’s retail sales unexpectedly fell in June, disappointing investors who were expecting a strong reading. Therefore, a strong reading in July is likely to strengthen GBP as this will add to the solid wage growth and support BoE officials’ expectations that inflation is likely to pick up towards the end of the year. • Finally on Friday, From Canada, we get the CPI for July. Expectations are for the headline CPI and the core CPI to accelerate somewhat. However, given the second slump in global oil prices, if the core rate misses expectations and decelerates, this could prove CAD-negative. Retail sales for June are also coming out. The Market EUR/USD breaks below a short-term uptrend line • EUR/USD traded above the 1.1160 (R1) barrier, but fell short of reaching the 1.1200 (R2) barrier. Subsequently, the rate tumbled and fell below the uptrend line taken from the low of the 7th of August. As a result, I would switch my view to neutral as far as the short-term picture is concerned. A possible break below the 1.1080 (S1) hurdle would signal the completion of a failure swing top formation and perhaps turn the bias negative. Something like that could set the stage for more bearish extensions, perhaps towards the 1.1020 (S2) barrier. Our momentum studies support somewhat that EUR/USD could trade lower for a while. The RSI fell below its upside support line and just crossed below its 50 line, while the MACD, although positive, has topped and fallen below its trigger line. As for the broader trend, as long as EUR/USD is trading between 1.0800 and 1.1500, I would consider the longer-term picture to stay flat. I believe that a move above the psychological zone of 1.1500 is the move that could carry larger bullish implications, while a break below 1.0800 is needed to confirm a forthcoming lower low on the daily chart and perhaps turn the overall bias back to the downside. • Support: 1.1080 (S1), 1.1020 (S2), 1.0975 (S3) • Resistance: 1.1160 (R1), 1.1200 (R2), 1.1245 (R3) GBP/USD looks ready to challenge 1.5670 again • GBP/USD traded higher on Friday after it found support at 1.5580 (S1). Today, during the early European morning, the rate is headed for another test at the well-tested resistance hurdle of 1.5670 (R1). I believe that a break above that obstacle is needed to confirm a forthcoming higher high on the 4-hour chart and turn the bias to the upside. Something like that is likely to open the way for the next resistance at 1.5735 (R2). Both our momentum indicators, although within their bullish territories, point sideways and support my choice to wait for a break above 1.5670 (R1) before I get more confident on the upside. As for the broader trend, the price structure on the daily chart still suggests an uptrend. What is more, Cable is still trading above the 80-day exponential moving average. However, given that byers failed several times to overcome the 1.5670 (R1) barrier, I would hold a neutral stance as far as the overall outlook is concerned. • Support: 1.5580 (S1), 1.5530 (S2), 1.5465 (S3) • Resistance: 1.5670 (R1), 1.5735 (R2), 1.5780 (R3) USD/JPY rebounds from 124.10 • USD/JPY rebounded somewhat after it found support near the 124.10 (S1) barrier. The rebound printed a higher low on the 4-hour chart and this make me believe that the rate could trade higher for a while. A break above 124.60 (R1) would confirm a forthcoming higher high and perhaps aim for another test at the psychological zone of 125.00 (R2). Our short-term oscillators support somewhat the notion. The RSI turned up again and could move above its 50 line soon, while the MACD, although negative, has bottomed and looks ready to cross above its trigger line. On the daily chart, the price structure still suggests a major upside path. Nevertheless, a break above 125.80 is needed to signal the continuation of that long-term uptrend. • Support: 124.10 (S1), 123.80 (S2), 123.40 (S3) • Resistance: 124.60 (R1), 125.00 (R2), 125.30 (R3) Gold hits support at 1112 and rebounds somewhat • Gold hit support at 1112 (S1) on Friday and today during the Asian morning, it traded somewhat higher. I still believe that since the rate has broken I still believe that, since the rate has broken above the upper bound of the sideways range it’s been trading from the 21st of July until the 11th of August, the short-term outlook is positive. Nevertheless, I would like to see a clear move above 1127 (R2) before I get more confident on the upside. Something like that could open the way for our next resistance at 1145 (R3). Taking a look at our short-term oscillators, I see signs that another pullback could be in the works before the next positive leg. The RSI, although above 50, looks ready to turn down again, while the MACD has topped and fallen below its trigger line. In the bigger picture, the plunge on the 20th of July triggered the continuation of the longer-term downtrend and this keeps the overall bias of the yellow metal to the downside in my view. As a result, I would treat the short-term uptrend as a corrective move of the longer-term downtrend. • Support: 1112 (S1), 1105 (S2), 1095 (S3) • Resistance: 1120 (R1), 1127 (R2), 1145 (R3) WTI tests the downtrend line and turns down • WTI traded slightly higher on Friday, but hit resistance at the downtrend line taken from the peak of the 30th of July and turned down again. During the early European morning Monday, the rate is trading near the 41.85 (S1) support barrier, where a clear break is likely to challenge again the 41.35 (S2) line, defined by Friday’s low. I believe that a dip below the 41.35 level could set the stage for extensions towards the psychological round figure of 40.00 (S3). Our hourly oscillators detect negative momentum and support the case for further declines. The 14-hour RSI fell below its 50 line and edged lower, while the hourly MACD, already negative, has topped and fallen below its trigger line. On the daily chart, price structure has been lower peaks and lower troughs since the 24th of June. Therefore, I would consider the longer-term trend to be negative as well. • Support: 41.85 (S1), 41.35 (S2), 40.00 (S3) • Resistance: 42.30 (R1) 42.80 (R2), 43.70 (R3) BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS MARKETS SUMMARY click here to read more click here to read less



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