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The Week Ahead: Week of June 15, 2015

Market Movers: Weekly Technical Outlook

Technical Developments to Watch:

  • EUR/USD still holding below 1-year bearish trend line resistance at 1.13
  • GBP/USD rally testing previous resistance at 1.5565
  • USD/JPY put in a potentially important top near 126.00 last week
  • EUR/GBP in play, in the middle of the recent .7050-.7400 range

* 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 up to test its 1-year bearish trend line at 1.13 last week
  • MACD ticking higher, Slow Stochastics in neutral territory
  • Cautiously bearish below 1.13, but a break above could quickly expose 1.14 or 1.15

EURUSD edged higher early last week before stalling out against resistance at the 1-year bearish trend line near 1.1300. Meanwhile, the secondary indicators are giving little in the way of a meaningful signal with the MACD ticking higher and the Slow Stochastics in neutral territory. Traders are clearly trying weigh concerns about Greece vs. this week’s upcoming FOMC meeting, but from a longer-term technical perspective, the one-year bearish trend line capped last week’s rally once again, so we’re inclined to give the bears the benefit of the doubt as long as EURUSD holds below 1.1300.






  • GBPUSD rallied consistently throughout last week
  • MACD turning higher, Slow Stochastics not yet overbought
  • Potential for more strength toward the double bottom target near 1.5700 this week

GBPUSD rallied consistently throughout last week’s trade, working all the way up to 1.5500 as of writing. The pair has now broken conclusively above its double bottom neckline at 1.5440, opening the door for further gains this week. As for the secondary indicators, the MACD appears to be turning higher and the Slow Stochastics are not yet in overbought territory, raising no immediate warning signs for the rally. Moving forward, bulls may look to target the double bottom objective near 1.5700 if the unit can clear the 61.8% Fibonacci retracement at 1.5570.






  • USDJPY fell sharply last week as Japanese policymakers conspired to jawbone the yen up
  • MACD rolling over, Slow Stochastics showed a bearish divergence
  • Bias has turned to the downside below the previous 13-year high at 124.15

USDJPY bulls were blindsided last week as Japanese government and BOJ policymakers hit the wires in coordinated speeches to drive the yen higher. The united front in favor of a stronger yen marks a sharp shift in currency policy from the central bank and may mark a potentially important top in USDJPY. The secondary indicators confirm this view, with the MACD rolling over and the Slow Stochastics putting in a clear bearish divergence during last week’s high. Looking ahead, the bias will remain lower this week as long as USDJPY holds below the previous 13-year high at 124.15, and more generally, last week’s high near 126.00.





  • EUR/GBP rolled over last week to test the 61.8% Fib retracement at .7185
  • MACD still showing bullish momentum
  • Break below .7180 could expose double top target at .7140

EUR/GBP is our currency pair in play this week due to a number of high-impact economic reports out of Europe and the UK (see “Data Highlights” below for more). Last week, EURGBP rolled over off previous resistance at .7385, creating a double top pattern at the level (a perfect inverse of GBPUSD’s double bottom pattern). For this week, traders will watch for a break below the 61.8% Fibonacci retracement at .7185 to signal a possible continuation down to the double top pattern target at .7140 or lower.


Will the FOMC Help the RBNZ Unsettle NZDUSD?

Last week a very dovish Reserve Bank of New Zealand cemented NZDUSD as the pair to watch for FOMC hawks. The RBNZ cut interest rates for the first time in four years and paved the way for further policy loosening; by contrast the FOMC meeting this week may serve to speed up the countdown until rate lift-off in the US. This theme has already driven to NZDUSD to its lowest level in over four years and pushed rates to the all-important psychological support zone around 0.7000. 

NZD is losing its yield advantage

The market has been pondering the possibility of looser monetary policy in NZ ever since RBNZ Assistant Governor McDermott made some fairly dovish comments about the outlook for interest rates in late April. This sentiment was confirmed by the RBNZ at its policy meeting only a few days later, but it refrained from loosening in favor of a wait-and-see approach. Nonetheless, the damage was done and the kiwi began to slide, much to the delight of the RBNZ.

The market’s fears were confirmed last week when the RBNZ cut interest rates for the first time in four years, lobbing 25 basis points off the official cash rate and citing low inflationary pressures and an expected weakening demand. At the same time, the bank opened the door for even looser monetary policy later this year, with Governor Wheeler noting that further easing may be appropriate.

Strong US spending and jobs numbers may lead to a more hawkish Fed

This should contrast nicely with a more upbeat tone from the FOMC this week on the back of improving US economic data. The labor market continues to recover, with an impressive 280K increase in non-farm payrolls in May, and wage inflation and core price pressures are building - consumer spending is increasing at an encouraging pace as retail sentiment improves. Also, gauges of manufacturing activity are pushing further into optimistic territory. These consistent encouraging signs from the US economy may translate into a more hawkish tone from the Fed this week, with Yellen expected to gradually prepare the market for higher interest rates later this year.

Storm clouds over NZDUSD

The diverging paths of the RBNZ and the Fed make NZDUSD a very attractive short heading into this week’s FOMC meeting. At the time of writing NZDUSD is flirting with 0.7000 but hasn’t manage to hold below this level - the pair briefly dipped below following the RBNZ’s decision to loosen monetary policy, but it has since regained some composure. If the Fed adds weight to a US dollar rally then NZDUSD may make a more permanent move below 0.7000, although it’s also worth keeping an eye on NZ’s Q1 GDP numbers (exp. 0.6% q/q) and a slew of US economic data, including CPI numbers on Thursday (exp. 0.5% m/m; core 0.2%).

Look Ahead: Stocks

European stocks have had a wild ride this week. Renewed hopes over a deal for Greece initially caused stocks to surge higher on Tuesday and the buying momentum continued into Wednesday’s session. It was reported that the German Chancellor Angela Merkel may be satisfied with the debt-laden nation committing to just one economic reform sought by creditors to open the door to bailout funds.  However, such a deal was subsequently dismissed causing the markets to pause for breath. Then on Thursday, hopes over an imminent deal were dashed after the IMF walked out of rescue talks in Brussels and said "major differences" and a lack of progress in key areas remain between Greece and its creditors. As a result, European stocks gave back a big chunk of their gains made earlier in the week.

So as we end another week, it remains to be seen whether a deal to release €7.2 billion in bailout aid will be reached before Greece runs out of cash or makes the €1.6 billion payment to the IMF at the end of the month. Given the lack of clarity on the issue, traders understandably reduced their risk exposures ahead of the weekend. Greece will remain a hot topic and we foresee another volatile week for European stocks as traders respond to the fresh headlines from the parties involved in the talks. If the Greek saga is resolved favourably, we think stocks will stage a sharp relief rally at the very least. The investor focus may then quickly return to the ECB’s on-going bond-buying stimulus program, potentially causing the markets to resume their long-term bullish trends. However, if Grexit becomes a reality then all bets are off.

Though the DAX rallied strongly at the start of the week, it is by no means out of the woods just yet. As the daily chart below shows, the index has broken back below the pivotal 11200 level after finding good support at the bottom of the bearish channel. As the index is still inside this channel, the path of least resistance remains to the downside. Until it breaks above the channel, we remain cautious, particularly as the Greek issue is still unresolved and the euro is stronger compared to a few months ago.  The upper trend of the bearish channel comes in around the 78.6% Fibonacci level of the last downward move from 11925 (point C) at 11700, where we also have the 50-day moving average converging. The 61.8% Fibonacci retracement, which tends to be the more significant technical level for the DAX, comes in at 11520. If and when the abovementioned resistance levels are cleared, the DAX bulls may then target the May high at 11925 and then the 127.2% Fibonacci extension level at 12215.

But as things stand, the DAX looks set to drop towards the lower end of the channel once again. A couple of Fibonacci levels also converge there so it is worth pointing them out: the 38.2% retracement of the last major upswing from the October low (point X) and the 161.8% extension of the most recent upswing (from point B to C). Incidentally, the 161.8% Fibonacci extension level is where the point D of and AB=CD pattern completes. So for all these technical reasons, we may well see a rally of some sort from there. But if that area is taken out then a much larger correction may be underway.


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


Look Ahead: Commodities

By the end of the week, crude oil had given up a good chunk of the gains made earlier. Oil prices started to fall from Wednesday afternoon as traders took profit ahead of the official crude oil supply data later that day.  As you may be already aware, the US Energy Information Administration (EIA) reported that crude stocks decreased by a good 6.8 million barrels last week, meaning they have now fallen for the sixth time in as many weeks. Gasoline inventories also fell sharply, pointing to a strong start to the US driving season as motorists take advantage of “cheaper” fuel prices. Indeed refineries processed crude at a nearly record-high rate. But despite all this good news, WTI was not able to extend its gains on Wednesday afternoon. Part of the reason is that the American Petroleum Institute (API) had already reported similar numbers on Tuesday evening, so most of the good news was already priced in.

Traders were also cautious ahead of the monthly crude oil report from the International Energy Administration (IEA), after the EIA’s equivalent report had predicted a small rise in oil demand for 2015 of 20,000 barrels per day to 1.25m b/d.  While the IEA also raised its demand forecasts – to 1.4m b/d, no less – the report conveyed a more bearish outlook as it said global oil production growth was “exceptionally high” despite signs of a slowdown in non-OPEC supply, notably in the US. Last week, the OPEC agreed to maintain its 30 mb/d production quota unchanged for another six months. But according to the IEA, the cartel pumped more than 1m b/d above this target for three consecutive months. The largest OPEC producers are leaving the taps wide open, with Saudi, Iraq and the UEA all pumping at record monthly rates in May.

The oil market surplus could hit new highs if Iran were allowed to make a full return to the market, with the deadline for the nuclear agreement, set for June 30, just a couple of weeks away now. It is also worth remembering that if prices start to rise more markedly then US shale oil companies may well ramp up production once more. This shouldn’t be too difficult to achieve as the infrastructure is already there. Thus the global supply surplus may remain in place for a lot longer than some might expect. This therefore could provide a firm ceiling to prices in the medium term.

In the short term, however, the brighter demand outlook and the recent sharp falls in crude stocks, combined with a slightly weaker US dollar, could provide oil some support.

From a technical point of view, both the major crude contracts have pulled away after testing key resistance levels in mid-week. WTI has once again stalled around that $61.70 mark where it had struggled previously. Some bullish traders may have decided to book profit there and this alone may have exerted some pressure on prices, so it remains to be seen whether a closing break above $61.70 could be achieved next week. If seen, the bulls may then aim for the early May high of $62.55 as their next target. Thereafter, the 200-day moving average comes in around $63.00, followed by the Fibonacci extension levels of the most recent downswing at $64.20 and $66.30. The long-term 38.2% Fibonacci retracement of the swing from June 2014 comes in at $67.10. Meanwhile support could be provided around the psychological $60 handle or further lower around $58.00 where the 50-day moving average converges with the bullish trend line. For as long at this level holds as support the near-term technical outlook would remain bullish.  If broken then a move towards $54.00 could get underway next week.

Meanwhile Brent has failed to break above its 61.8% Fibonacci level of the most recent downswing at $66.30. If it eventually breaks above here then we could see the London-based oil contract make a move towards the May high at $69.60 where it will also meet the 200-day moving average. Thus the potential for a double top reversal around that level is there. So far however, the developing bullish trend line has managed to hold firm after several tests, while a shorter-term bear trend has also broken down. Like WTI, for as long as price remains above the bullish trend line, our near-term technical outlook on Brent will correspondingly remain bullish.


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


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


Global Data Highlights

Monday, June 15

1230GMT – Canada Manufacturing Sales (April)

Manufacturing sentiment in Canada has been soft recently and this was accompanied by falling sales earlier in the year. In fact, during January and February manufacturing sales had their biggest two-month decline since the recession, before rebounding strongly in March. It takes more than one month of good economic data to convince the market, so we’ll be watching this release closely to see if sales improve for two consecutive months.

1315GMT – US Industrial Production (May)

After a poor showing in April, industrial production is expected to have rebounded 0.2% m/m last month. This economic indicator is a good metric for broad economic activity, and another soft reading could undermine the positive sentiment that has been built up on the back of stronger consumer spending and jobs numbers. This could lead to a pullback in the US dollar as the market tones down its expectations for the FOMC’s policy meeting later in the week. 

Tuesday, June 16

0130GMT – RBA Monetary Policy Meeting Minutes (June)

At its policy meeting in June the RBA left the official cash rate on hold at 2.00% as expected and retained its implicit easing bias. The bank noted that Australia’s uncertain and somewhat bleak economic outlook requires accommodative monetary policy, and it’ll be interesting to see if the RBA expands on this in its meeting minutes. Governor Stevens hinted that the bank has an overt easing bias during a speech in Brisbane last week, but the bank is notorious for keeping its options open. If the RBA does expand on Stevens’ speech we expect it will put AUD on the back foot in the near-term.

0830GMT – UK CPI (May)

Consumer prices entered deflationary territory in April for the first time on record, but we don’t expect them to remain here for long. The main causes of softening headline inflation appear to be temporary and weak inflation in the short-term should help to boost economic growth. Nonetheless, the BoE isn’t going to think about tightening monetary policy while inflationary pressures remain low, which could put a ceiling on GBPUSD, especially considering we’re hawkish on US rates.

0900GMT – CPI (May)

Price pressures in the core of the eurozone are watched very closely for signs of stress. The final CPI numbers for May are expected to confirm that consumer sending rebounded somewhat over the month, after 0.0% reading in April. Year-on-year growth is expected to continue to recover, with a 0.7% reading this time around.

Wednesday, June 17

0830GMT – UK Unemployment (April) and Jobless Claims (May)

The ILO unemployment rate is expected to remain at 5.5% in April and jobless claims in May are expected to fall 13.8K. The health of the labour market is a key ingredient in the BoE’s policy mix, thus both the aforementioned releases are important for GBP traders.

1800GMT – FOMC (no change expected)

The labour market continues to recover, with an impressive 280K increase in non-farm payrolls in May, and wage inflation and core price pressures are building - consumer spending is increasing at an encouraging pace as retail sentiment improves. Also, gauges of manufacturing activity are pushing further into optimistic territory. These consistent encouraging signs from the US economy may translate into a more hawkish tone from the Fed this week, with Yellen expected to gradually prepare the market for higher interest rates later this year.

2245GMT – NZ GDP (Q1)

The NZ dollar was assaulted by bears following last week’s policy meeting at the Reserve Bank of New Zealand (RBNZ). The bank cut the official cash rate to 3.25% and opened the door for further easing in coming months/quarters, which has left the kiwi very vulnerable to NZ economic data. The economy is expected to have expanded 0.6% q/q and 3.1% y/y last quarter, which is a big step down from Q4 2014, thus an even softer figure may add weight to the NZD sell-off. Meanwhile, a stronger set of numbers could see the market tapper its expectations for further policy loosening.

Thursday, June 18

0730GMT – SNB (no change expected)

The Swiss National Bank is widely expected to leave the three-month libor range at -1.25% to -0.25% and the slight deposit rate at -0.75%. In fact, not much is expected from this meeting, with the bank not projected to alter policy until at least September.

0830GMT – UK Retail Sales (May)

Consumer spending is an important gauge of activity at the ground level in the UK economy. Core retail sales are expected to have fallen 0.2% last month, which may put a damper on a recent improvement in this sector. With expectations to the downside in the lead up to this release, a stronger than expected figure may push GBP higher in the near-term.

1230GMT – US Inflation (May)

The persistent lack of consistent inflation in the US is the major thing stopping the Fed from raising interest rates sooner rather than later. This makes the release of CPI data very important for the US dollar, with the market expecting a soft 0.5% m/m rebound in inflation during May; core-CPI is expected to only rise 0.2%.

Friday, June 19

Tentative – BOJ (no change expected)

Last week governor Kuroda shocked the market by saying that the yen was very weak and unlikely to fall further. If the bank is uncomfortable with a weaker yen it reduces the chance of further policy easing, although it definitely doesn’t eliminate the possibly. This time around the market is expecting the bank to maintain the status quo by reinforcing the idea that it will ease further if needed to support inflation, but it should be a fairly uneventful meeting.

1230GMT - Canada CPI (May)

In April, consumer price growth dropped into negative territory for the first time since January, after a seller rebound in earlier months. If this turns into persistent deflation it will further complicate the policy situation in Canada, with the bank weighing a generally soft economy against increasing household debt. A soft print for May could lead to a sell-off in the CAD.

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