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    The Week Ahead: Week of April 27, 2015


    Technical Developments to Watch:

    • EUR/USD edging higher, despite Greece debt debacle
    • GBP/USD is testing key Fib resistance at 1.5175 after a big rally
    • USD/JPY still trapped in the lower half of its 1.1830-1.2180 range
    • NZD/USD in play, break of .7400-.7700 zone possible on economic data


    * Bias determined by the relationship between price and various EMAs. The following hierarchy determines bias (numbers represent how many EMAs the price closed the week above): 0 – Strongly Bearish, 1 – Slightly Bearish, 2 – Neutral, 3 – Slightly Bullish, 4 – Strongly Bullish.

    ** All data and comments in this report as of Friday’s European session close ** 



    • EURUSD edged above 1.0800 in quiet trade last week
    • MACD continues to grind its way back toward the “0” level
    • Bias neutral within established 1.0500-1.1050 range

    EURUSD consolidated in quiet trade around the 1.0800 last week, despite ongoing concerns about Greece’s debt situation and Friday’s Eurogroup meetings. In fact, the pair actually edged higher on the week to trade up into the mid-1.0800s as of writing on Friday afternoon. That said, the medium-term bias remains neutral as long as the pair stays between support at 1.0500 and resistance up at 1.1000-50.





    • GBPUSD rallied through key psychological resistance at 1.50 all the way up to 1.5175 Fibo
    • MACD is crossing above the “0” level, but Slow Stochastics now overbought
    • Bulls could look to target 61.8% Fib retracement at 1.5175 as long as rates hold above 1.50

    GBPUSD surprised many traders (ourselves included!) by breaking above key previous / psychological resistance at 1.50 last week. Wednesday’s slightly less-dovish-than-expected BOE minutes pushed the pair up to its highest closing price since mid-March, and now that the 1.50 level has been eclipsed, a continuation toward the 61.8% Fibonacci retracement at 1.5175 is favored this week. Meanwhile, the MACD is crossing the “0” level, confirming the shift back to bullish momentum, though the overbought Slow Stochastics may serve as a near-term headwind for cable bulls.





    • USDJPY rallied then dipped last week, but remains in its 118.30-121.80 range
    • MACD and Slow Stochastics show balanced, two-way trade
    • All eyes on range support at 118.30

    USDJPY ticked modestly higher early last week before turning back lower, but the unit remains trapped in a sideways range between support at 118.30 and resistance up at 121.80 for the eleventh consecutive week. With neither the MACD nor the Slow Stochastics offering a clear signal, more consolidation in the recent range is probable this week, but if we do see a breakout below 118.30 support, bears could target 117.00 or 116.00 next.





    • NZDUSD reversed off resistance at .7700 last week
    • MACD still shows bullish momentum
    • Key fundamental data releases will determine whether .7400-.7700 range breaks

    NZDUSD is our currency pair in play this week due to a number of high-impact economic reports out of New Zealand, China, and the US (see “Data Highlights” below for more). Last week, NZDUSD turned lower off previous resistance at .770 before finding support at its 20-day MA on Friday. Overall the pair exhibits the same broad consolidative price action that has taken over most major currency pairs. As it stands, the MACD is still showing bullish momentum, but the onslaught of economic data will determine whether NZDUSD breaks out from its sideways range or not this week.



    The possibility of a Greek default is at the forefront of investor sentiment, but there’s also a lot happening in Asia. Last week, a slew of economic data and some well-aimed comments from central bankers resulted in some big moves in Asia’s major commodity currencies, the Australian and New Zealand dollars. In fact, the game-changing events of last week have resulted in another power shift between the two antipodean currencies and a fundamental change in the behavior of yield seekers, with positive economic data out of Australia being weighed against some soft inflation numbers from NZ and dovish comments from the RBNZ in the lead-up to monetary policy meetings in the antipodean countries.

    In NZ, the kiwi plummeted over 1% after RBNZ Assistant Governor McDermott made some fairly dovish comments about the outlook for interest rates in NZ. McDermott stated that the RBNZ isn’t considering hiking interest rates at this stage and weaker demand and inflation would prompt rate-cut talk. He summed it up by saying the inflation outlook requires a period of supportive policy, suggesting the RBNZ is more concerned about underlying low inflation than we previously thought.

    At its policy meeting last month, Governor Wheeler noted that the bank was expecting a period of stability in the official cash rate, even as it predicted that inflation will remain below its target of 2% for the next two years. However, inflation growth is currently a measly 0.1% y/y after falling 0.3% last quarter, which was softer than the market was expecting and is clearly concerning policymakers. This may lead to a more dovish tone from Governor Wheeler at the RBNZ’s policy meeting this week. The bank is widely expected to leave the official cash rate on hold this time around, but the threat of deflation and the dovish comments from McDermott last week represent a potential shift in the outlook for interest rates in NZ. It is looking more and more likely that the next move by the RBNZ may be to lower the official cash rate, as opposed to the widespread belief at the beginning of the year that the bank would hike rates in 2015.

    The dovish shift in NZ is in contrast to a potentially more upbeat outlook from the RBA. This is due to a slightly improved inflation outlook and a stronger than expected labor market. Australia’s unemployment rate dropped to 6.1% in March from a revised 6.2% in February, as the economy added 37.7K jobs last month, more than doubling market expectations, and employment growth in February was revised much higher (42k vs. 15.6k). Not only did the economy add a substantial amount of jobs over the last two months, they largely consisted of full-time employment, which is more indicative of a healthy economy than persistent growth in part-time employment. Also, inflation in Australia is actually hotter than it is across the Tasman. Headline CPI growth is 0.2% q/q and 1.3% y/y. The more important core-inflation figures are also slightly better than expected, with weighted mean CPI jumping 0.6% and 2.4% y/y, beating expected increases of 0.5% and 2.3% respectively.

    However, the RBA is still daunted by a lack of activity in non-resource parts of the economy, falling commodity prices and diminishing mining investment. This is likely to see the bank firmly retain its dovish bias at its policy meeting in early May, but the aforementioned better-than-expected economic data has cast serious doubt over the prospect of an interest rate cut at that meeting. The bank can probably afford to wait on the sidelines for another meeting by leaving interest rates at present levels, which means it wouldn’t risk adding fuel to Sydney’s already overheated property market. In saying that, it’s going to be a very close call. Stevens refused to rule out the possibly of a rate cut during a speech in NY last week (he is scheduled to speak again on Tuesday at 0840AEST (2240GMT)).

    These fundamental changes in the outlook for monetary policy in the antipodean economies are driving AUDNZD higher, but they also have implications for the broader FX market. The less threatened the market feels by the possibility of looser monetary policy in Australia and the more threatened it feels by the prospect of lower interest rates in NZ, the more we may see a fundamental shift in the behavior of yield seekers. In the wash-up, the Aussie is now looking more attractive for carry traders and other yield hunters (see Figure 1), while the kiwi’s attractiveness is diminishing. This could see AUDNZD continue to push higher in the medium term, possibly towards 1.0500 and then 1.0800.

    Figure 1: AUDNZD is now benefiting from a narrowing AU-NZ yield spread


    Source:, Bloomberg

    Prior to the first quarter reporting season, much was said about the strength of the US dollar and the weather, among other things. But the results have so far been surprisingly good. After last week’s better-than-expected numbers from the banking sector, we heard some more good news this week from the likes of DuPont, IBM and Microsoft, among others. And although earnings from some household names such as Amazon, Google and McDonalds missed analysts’ expectations, their share prices nonetheless rallied as investors chose to focus on other metrics of their quarterly performance and forward guidance. As a result of the positive results, the major US indices rallied across the board this week, which saw the Nasdaq Composite index hit a fresh closing record high as it surpassed the peak of 5048 set in March 2000. The S&P gained ground too, although it came just shy of hitting a fresh record before pulling back slightly. But should the earnings results continue their current good form, it could be just a matter of time before we see virgin territories for this index as well. Next week’s earnings include the likes of Apple on Monday; Twitter, Pfizer and Ford on Tuesday; Baidu on Wednesday; and ExxonMobil on Thursday.

    As mentioned, the S&P has now broken a bearish trend line that went back all the way to February 25. Thus, if earnings continue to surprise to the upside then sooner or later the S&P may break higher and achieve a new record above 2120. What’s more, the momentum indicator, MACD, has now crossed above the signal line and is holding above zero. This suggests that the bearish momentum is fading, but the MACD has yet to break its own bearish trend line, which is needed to confirm the potential breakout above 2120 on the S&P.

    If the S&P does break higher, the first couple of bullish targets would be the Fibonacci extension levels shown on the 4-HR chart. However, a potential break below the 2110 short-term support level may give rise to further follow-up technical selling and potentially pave the way for another test of the next logical support around 2070/5. But the pivotal level is lower still at 2040/2, which needs to be defended for the short-term upward trend to remain intact. However, even if the S&P goes on to break this level eventually, the long-term bullish trend would still remain intact for as long as it remains inside the bullish channel that goes back all the way to October 2010 (see the weekly chart). Meanwhile there are a couple of other long-term Fibonacci extension levels shown on the weekly chart around 2138 and 2147. These levels correspond with the 161.8% Fibonacci extension levels of the 2007-9 bear trend and the downswing from September to October 2014, respectively. Along with the extension levels on the 4-hour chart, these are among the bullish targets we will be watching should the index hit a fresh record next week. 


    Source: Please note this product is not available to US clients


    Source: Please note this product is not available to US clients

    Although mixed at the time of this writing on Friday, crude oil looks set to end the week strongly after both contracts were able to recover from their slump at the start of the week. Thursday’s price surge lifted Brent to its highest level since early December while WTI closed in on the four-month high of its own that it had achieved on Monday. Oil is therefore finding at least some support from momentum traders speculating on rising prices after the recent plunge. Some of this group of market participants may have no fundamental reason for doing so, but like most people they may be thinking that there must be a reason for prices to have rallied and so don’t want to miss out on the opportunity. Oil is finding additional support from a weaker dollar, which has sold off in part because of the rallying EUR/USD. This currency pair has found some support on the back of mostly better than expected Eurozone data of late and hopes that a deal between the Greek government and the Eurogroup will be reached eventually, even if the can was kicked down the road once again on Friday. But the euro’s strength is unlikely to be sustained. Once investors make a more sober assessment of the situation, they will realize that the interest rate differential between the Eurozone and US is growing, even if the probability of a Fed rate hike this year has been slashed. Thus, the dollar may not fall much further than it already has, thereby removing one source of support for buck-denominated commodities, including crude oil.

    Admittedly, crude oil production in the US has started to fall back a tad and this trend may continue for some time yet given the recent sharp falls in both the oil price and also rig counts. But this will still merely represent a drop in the ocean, for the oil market is likely to remain more than amply supplied. As we reported on Wednesday, crude oil inventories in the US rose for the fifteenth consecutive time last week to a fresh record high of 489.0 million barrels. Speculators nonetheless chose to focus on the “positive” aspects of the report which showed, among other things, a 2.1-million-barrel decrease in gasoline stocks. This points to stronger fuel demand from motorists ahead of the US driving season, which unofficially starts towards the end of May. Investors are also turning a blind eye to the fact that Iranian oil could make a full return to the already saturated market soon, after the country reached a provisional agreement with the so-called P5 1 earlier this month on a framework that would lift most of the sanctions in exchange for limits on Tehran’s nuclear program. The possibility is thus high that any future declines in US oil production will likely be more than offset by increased output from Iran. In other words, the oil market will most likely remain sufficiently oversupplied for the foreseeable future. Indeed, the demand prospects do not look great either, with economic activity in China and the US – the world’s largest oil consumers – slowing down recently.

    Nevertheless, the near-term outlook for oil is now bullish as key technical resistance levels have been broken. Until we see the bullish momentum fade (soon, we suspect), the path of least resistance will thus remain to the upside. WTI is currently hovering around the 127.2% Fibonacci extension level of its most recent downswing at $57.50. A conclusive break above here may target the psychologically important $60.00 handle next, followed by the 161.8% extension at $61.70. The key support level to watch is at $55.75 – the mid-week low. A break below this level and also the bullish trend line, would pave the way for the old resistance at $54.00. The bias would turn bearish on a potential break below $54 and the trend would be further confirmed on close below the next support at $53.00. Brent meanwhile is hovering near the 127.2% Fibonacci extension levels of the past two price swings, AB and CD, at $65.80. Should it manage to break higher, then the next set of Fibonacci extension levels would become relevant. These are at $67.00 (161.8% extension of CD), $69.45 (161.8% extension of AB) and $70.45 (261.8% extension of CD). For a detailed explanation of Fibonacci analysis, please read our Ultimate Fibonacci Guide.


    Source: Please note this product is not available to US clients


    Source: Please note this product is not available to US clients

    Monday, April 27, 2015

    22:40 GMT          Reserve Bank of Australia’s Governor Glenn Stevens Speech

    Stevens is scheduled to speak at the Australian Financial Review Banking and Wealth Summit, and if you’ve been following what he has been saying lately, he could continue to beat down the currency under his care. By continually mentioning that he believes the AUD will go lower and not ruling out the chance of cutting interest rates, he is essentially trying to will his currency down. If kicking the AUD down a few notches is Stevens’ ultimate goal, he may have to try harder as Aussie data hasn’t really been all that bad. This past week showed that inflation was higher than anticipated which has been added on the decent employment data from the week before. It may take an insinuation of a rate cut if Stevens really wants to make a dent in the optimism down under.

    Tuesday, April 28, 2015

    8:30 GMT             UK Preliminary Gross Domestic Product (Q1)

    The GDP reading out of the UK has become a bit of a snoozer as the result has been between 0.5% and 0.8% for the last seven quarters straight. Expectations this time around are for it to come in on the bottom end of that range with a 0.5% consensus. If this figure were to disappoint, there may be a lot of room for the GBP to fall due to it being on a bit of a hot streak over the last couple weeks. With the UK elections looming on May 7th as well, there may be a bit more scrutiny on this figure.

    Wednesday, April 29, 2015

    12:00 GMT          German Preliminary Consumer Price Index (April)

    Inflation has been a hot topic of conversation for central banks around the world thanks to the decline of oil prices, and that discussion is no less prevalent in Germany. The largest of the Eurozone nations takes up a large chunk of the final figure for the EZ, so seeing a robust figure here would be encouraging for the EZ as a whole. Unfortunately, consensus is anticipating something other than robust with a -0.1% expectation. If it were to fall even further below that figure, any remnants of EUR strength could be wiped out.

    12:30 GMT          US Advance Gross Domestic Product (Q1)

    This GDP release has loomed over the market’s head for the last couple months as many pundits have been predicting something less than gregarious. Weather was a large factor in Q1 and the Atlanta Fed’s GDP Now calculation has been consistently declining since January. Given the dour outlooks that many have proposed, a surprise to the upside may be just what the USD needs to return to prominence once again.

    18:00 GMT          Federal Open Market Committee’s Monetary Policy Statement and Rate Decision

    After seeing the GDP release a few hours before, the Fed will be making their policy decision and it is likely to amount to nothing much. While Fed Chairwoman Janet Yellen said that a rate rise couldn’t be ruled out at this meeting, that likelihood essentially fell to 0.0000001% after the latest Non-Farm Payroll disaster. The big risk here is for the Fed to sound even more dovish in their statement than we expect, potentially pushing out a rate hike expectation to December or even 2016.

    21:00 GMT          Reserve Bank of New Zealand’s Monetary Policy Statement and Rate Decision

    The RBNZ made some waves recently with Assistant Governor McDermott introducing the discussion of interest rate cuts instead of hikes to the financial media this past week. The market may be watching the RBNZ meeting carefully to see if McDermott’s mention was actually potential policy or simply a thought experiment. If it was the latter, the NZD could reverse whatever losses it posted this past week and may try to make another run at parity in the AUD/NZD.

    Thursday, April 30, 2015

    3:00 GMT             Bank of Japan Monetary Policy Statement, Rate Decision, and Press Conference

    This will be the second BoJ policy decision this month, and not much is expected from it. There were some rumblings of a potential increase in QQE at this meeting earlier in the month, but it appears that Prime Minister Shinzo Abe and his cohorts are satisfied with the current level of stimulus. One of Abe’s advisors mentioned that the USD/JPY would be properly valued at 105, and given that Japanese officials tend to fall in line with superiors, there is little doubt that is also what Abe wants. If all of that is simply a big distraction to make us expect nothing from the BoJ, it worked, so if they do ANYTHING at this meeting, it could have a huge impact.

    9:00 GMT             Eurozone Preliminary Consumer Price Index (April)

    The German release of CPI earlier in the week will likely have more impact than this release due to its sheer size and influence in this figure. At this point, everyone is familiar with the European Central Bank’s QE efforts that are designed to get this metric rising, but it may not have had enough time to show its muscle quite yet. Therefore, don’t expect too much fanfare here as the decision to try to get this rising has already been made.

    12:30 GMT          Canadian Gross Domestic Product (February)

    The tenor in Canada has been much more mellifluous lately with the Bank of Canada sounding less dove-like, employment showing strength, and oil prices starting to rise once again. However, we must be aware that the beginning of the year didn’t start out so great for the US’ northern neighbor considering there was a rate cut and most other economic figures were pretty rough. That’s why this GDP figure from February is expected to be an eyesore at -0.2%, but if it started to measure the current recovery all the way back then, it could be even more good news for the CAD.

    Friday, May 1, 2015

    1:00 GMT             NBS Chinese Manufacturing PMI (April)

    The NBS Chinese Manufacturing PMI is going to be an interesting release this week thanks in large part to the scrutiny around the Asian Giant lately. The HSBC Manufacturing PMI usually gets more notice in these writings since it is independent of the Chinese government, but the NBS release is one that is believed to be an extension of the government. Consensus is expecting a 50 reading which would indicate neither growth nor contraction, but a fall below the 50 level may create a selloff in AUD and NZD. The theory is that if the Chinese government is actually reporting contraction, then it must really be bad and the long-predicted end to stratospheric Chinese growth could soon come to pass.

    8:30 GMT             Markit UK Manufacturing PMI (April)

    Despite the beaten-down nature of the GBP lately, the economic figures out of the nation really haven’t been all that bad. Manufacturing PMI is one prime example of that as it has only missed consensus once out of the last six releases while consistently rising during that time. Consensus is expecting it to rise again this time around and if it performs could provide a bit of a spark for the GBP heading in to the elections occurring the next week.

    14:00 GMT          ISM US Manufacturing PMI (April)

    This will be one of the first major pre-NFP releases where we get to see a gauge of the employment situation in the US. The headline figure is important, but typically not as much as the employment subcomponent. Granted, there will be plenty more pre-NFP releases that come the week after, but the earliest read on the labor situation could frame the picture for what investors think the rest of the figures will show as they are released thereafter.

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