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Pound Dips Close to 1.30 as NFP Boosts Greenback
GBP/USD has posted small losses in the Monday session. In North American trade, the pair is trading at 1.3030, down 0.13% on the day. On the release front, it's a quiet start to the week, with no major events on the schedule. On Tuesday, the US releases JOLTS Jobs Openings, which is expected to edge lower to 5.66 million.
The British pound had a rough week, as GBP/USD slipped 0.09%. The dollar posted broad gains on Friday, as the July nonfarm payrolls report was better than expected. The indicator came in at 209 thousand, easily beating the estimate of 182 thousand. The unemployment rate edged lower to 4.3%, but the positive news was dampened somewhat by wage growth, which remained unchanged at 0.3%. This underscores weak inflation levels, which has left investors skeptical as to whether the Federal Reserve will raise rates one final time in 2017. On Thursday, the pound reacted negatively as the BoE cut its growth forecasts for 2017, from 1.9% in May to 1.7%, and for 2018, from 1.7% to 1.6%. As well, the bank sharply cut lowered its wage growth forecast for 2018, from 3.5% to 3.0%. The BoE held rates at 0.25%, but the minutes from the policy meeting were dovish, with MPC members warning that "GDP growth had been sluggish and was expected to remain so in the near term." The BoE's pessimistic message has dashed hopes of a rate hike before the end of the year, although the bank suggested that a slight improvement in growth could lead to a rate hike in 2018. BoE policymakers have publicly argued about monetary policy, and the vote at Thursday's meeting, 6 members favored holding rates, while only 2 members voted to raise rates. The British economy has slowed down, but the bank is reluctant to raise rates when inflation is running at 2.6%, well above the bank's target of 2%. To complicate matters, the Brexit talks have made little progress, raising fears of a messy exit from the EU, which could take a serious toll on the British economy. The City of London, a key European financial center, stands to lose thousands of financial jobs due to Brexit. Deutsche Bank announced that it will move at least 2,000 jobs from its London office to Frankfurt, and RBS has announced that it will relocate its London office to Amsterdam.
With the odds of a December rate hike at less than 50%, investor attention has shifted to the Fed's balance sheet, which stands at $4.2 trillion. Fed policymakers have broadly hinted at reducing purchases of bonds and securities starting in September, but San Francisco Fed President John Williams was more forthcoming about the Fed's plans, likely aimed at giving notice to the markets. In a speech on Wednesday, Williams said that the economy had "fully recovered" from the 2008 financial crisis and called on the Fed to start trimming the balance sheet "this fall". Williams added that the process would be gradual and would take four years to reduce the balance sheet to a "reasonable size". Other FOMC members have also come out in favor of the Fed starting to wind up its portfolio this fall.
Euro Struggles to Rise after German Industrial Production; Oil Bounces as Libya’s Largest Oilfield is Disrupted
As the economic calendar was lacking important data, the European session was quiet with the markets digesting the release of the German industrial production and the Halifax house price index, the only closely watched indicators of the day. Moreover, while investors were focused to catch any hints from the two-day OPEC/non-OPEC meeting launched today, energy prices initially edged higher before backtracking later in the day.
The dollar was more or less steady against its rivals during European trading, with the dollar index moving sideways around 93.30. Earlier, the dollar fell below its one-week high of 93.61 reached on Friday when better than expected non-farm payrolls pushed the dollar higher. Now, investors who continue being cautious about the political developments in the US, expect CPI and PPI data, to be released at the end of the week, in order to get more evidence on the subdued inflation. Based on forecasts, analysts anticipate the core CPI to grow flat at 1.7% in July year-on-year and the PPI to increase by 2.2% from the 2% estimated in June. Any improvements in inflation would motivate Fed policymakers to hike rates for the third time this year and reduce the Fed's overloaded balance sheet sooner.
The euro struggled to hold onto its intraday gains after German industrial production for the month of June disappointed forecasts. German industrial output surprisingly plummeted for the first time this year by 1.1% in June month-on-month from a positive 1.2% observed in May, while analysts anticipated output to rise moderately by 0.2%. This weighed on Germany's benchmark 10-year government bond yield which scaled back on Monday by one basis point to 0.46 percent from 0.47 percent seen on Friday amid concerns that the ECB will unwind its ultra-easy monetary policy later rather than sooner.
Euro/dollar was last eyeing the 1.18 handle, while euro/yen was up by 0.26% at 130.68. Meanwhile, euro/pound hit a fresh 11-month high of 0.9060 during today's trading.
Sterling followed a downward path after not so optimistic comments from a former top diplomat pushed the currency down by 0.20% to $1.3024. Simon Fraser, who was the senior civil servant at Britain's Foreign Office and the head of the UK Diplomatic Service until 2015 said on Monday that Brexit negotiations have not started "promisingly, frankly on the British side", attributing the outcome to disagreements between May and her team on the type of deal they want to conclude with the EU. Despite May's spokesman expressing his opposition to this as well as to Sunday's news of Britain agreeing to pay a £40 billion EU exit bill, the pound could not bounce back. Moreover, the Halifax house price index which was released earlier in the day and which rose slightly above expectations, could not support sterling either. The index which is estimated by the Halifax Bank of Scotland, one of the largest mortgage lenders in the UK, increased by 2.1% in July year-on-year, below June's reading of 2.6% but above the mark of 2% forecasted by analysts. On a monthly basis, the index improved from a negative 0.9% in June to a positive 0.4%. Expectations were set at a growth of 0.2%.
Regarding energy markets, WTI and Brent were last down 1.8% and 1.7%, trading at $48.66 and $51.50 per barrel respectively. OPEC and non-OPEC members are gathering in Abu Dhabi on Monday and Tuesday to discuss their compliance regarding output cuts. Meanwhile, other news out of the industry were that Libya's largest oilfield, Sharara, is getting ready to shut down according to an engineer working in the field, as the field is said to have been attacked by an army group. This development provided some short-term boost to oil prices during afternoon European trading hours.
Yen Quiet, Markets Eye Japanese Current Account
USD/JPY is almost unchanged in the Monday session. In North American trade, the pair is trading at 110.80, up 0.11% on the day. On the release front, it's a quiet start to the week, with no US releases on the calendar. Later in the day, Japan releases Current Account, with the surplus expected to climb to JPY 1.51 trillion. On Tuesday, the US publishes releases JOLTS Jobs Openings, which is expected to edge lower to 5.66 million.
The US dollar pushed the yen lower on Friday, courtesy of a solid nonfarm payrolls report. The indicator came in at 209 thousand, easily beating the estimate of 182 thousand. The unemployment rate edged lower to 4.3%, but the positive news was dampened somewhat by wage growth, which remained unchanged at 0.3%. This underscores weak inflation levels, which has left investors skeptical as to whether the Federal Reserve will raise rates one final time in 2017.
Last week's strong US payrolls report boosted the US dollar and raised the odds of a December rate hike, which are currently at 47%, up from 43% one week ago. With the Federal Reserve unlikely to raise rates before December, investor attention has shifted to the Fed's balance sheet, which stands at $4.2 trillion. Fed policymakers have broadly hinted at reducing purchases of bonds and securities starting in September, but San Francisco Fed President John Williams was more forthcoming about the Fed's plans, likely aimed at giving notice to the markets. In a speech on Wednesday, Williams said that the economy had "fully recovered" from the 2008 financial crisis and called on the Fed to start trimming the balance sheet "this fall". Williams added that the process would be gradual and would take four years to reduce the balance sheet to a "reasonable size". Other FOMC members have also come out in favor of the Fed starting to wind up its portfolio this fall.
Japan's economy has shown improvement, but the Japanese consumer remains pessimistic about economic conditions. Consumer Confidence moved higher in July, with a reading of 43.8 points. This marked a 4-month high. The lack of confidence in the economy has resulted in soft borrowing and spending levels. At the same time, manufacturing and housing indicators looked sharp earlier this week. Preliminary Industrial Production rebounded with a strong gain of 1.6%, after a decline of 3.3% a month earlier. As well, Housing Starts gained 1.7%, compared to a reading of -0.3% in May. These numbers underscore a stronger Japanese economy, buoyed by stronger demand for Japanese exports. However, weak inflation levels remain a serious concern. The BoJ's ultra-loose monetary policy has failed to coax inflation upward. At its recent policy meeting, the BoJ again extended its time-frame for reaching its inflation target of 2%. The bank is reluctant to scale back its asset-purchase program, which means that it will likely lag behind other central banks, such as the ECB, in reducing its stimulus program.
Elliott Wave Trade Ideas Performance Update
5 positions were entered last week with total profit of 65 points and the positions are listed below.
1 Aug : AUD/USD - Short at 0.8030,
1 Aug : EUR/GBP - Long at 0.8925, exited at 0.9025 (+ 100 points)
2 Aug : GBP/JPY - Long at 145.55, exited at 145.35 (- 20 points)
4 Aug : EUR/JPY - Long at 130.70, exited at 130.40 (- 30 points)
4 Aug : GBP/USD - Long at 1.3145, exited at 1.3160 (+ 15 points)
| AUD EUR/JPY EUR/GBP CAD GBP GBPJPY
Jan - 15 -275 - 35 -120
Feb + 140 -17 - 40 +11
Mar - 20 +115 +132 - 19
Apr + 30 - 40 +120 + 45
May - 55 +100 - 6 -65 -60
Jun + 81 +150 - 10 +185 -120 +205
Jul - 40 - 60
Aug - 30 + 100 +15 - 20
Sep
Oct
Nov
Dec
Y-T-D + 216 -112 +167 +463 -170 +110
Candlesticks and Ichimoku Trade Ideas Performance Update
4 positions were entered among all 4 currency pairs with total profit of 145 points and the positions are listed below:
2 Aug : USD/JPY - Short at 110.90, exited at 110.10 ( + 80 points)
2 Aug : EUR/USD - Short at 1.1850, exited at 1.1885 (- 35 points)
3 Aug : GBP/USD - Long at 1.3130, exited at 1.3130 ( 0 point)
3 Aug : EUR/USD - Short at 1.1880, exited at 1.1780 ( + 100 points)
| JPY EUR CHF GBP
Jan + 167 - 85 - 10 + 50
Feb + 200 +150 +93 - 59
Mar -23 -70 -23 - 35
Apr + 65 + 93 + 50 - 40
May - 65 - 35 + 100 -175
Jun -100 -10 - 10 +175
Jul + 85 - 35 - 8
Aug + 80 + 65 0
Sep
Oct
Nov
Dec
Y-T-D + 408 +68 +192 - 74
Trade Idea Wrap-up: USD/CHF – Buy at 0.9685
USD/CHF - 0.9725
Most recent candlesticks pattern : N/A
Trend : Near term up
Tenkan-Sen level : 0.9733
Kijun-Sen level : 0.9729
Ichimoku cloud top : 0.9718
Ichimoku cloud bottom : 0.9714
Original strategy :
Buy at 0.9685, Target: 0.9785, Stop: 0.9650
Position : -
Target : -
Stop : -
New strategy :
Buy at 0.9685, Target: 0.9785, Stop: 0.9650
Position : -
Target : -
Stop : -
Although the greenback has retreated after rising to 0.9765 on Friday and consolidation below this level would be seen, reckon downside would be limited to support at 0.9671 and bring another rise later, above said resistance at 0.9765 would signal recent upmove is still in progress, then further gain to 0.9775 (50% projection of 0.9438-0.9727 measuring from 0.9631) and later 0.9800-10 (61.8% projection) would follow but reckon 0.9830-40 would hold from here, bring another retreat later.
In view of this, would not chase this rise here and would be prudent to buy dollar on pullback as 0.9680-85 should limit downside. Below 0.9671 support would defer and suggest top is possibly formed, risk test of support at 0.9631 but break there is needed to add credence to this view, bring retracement of recent rise to 0.9596 (previous resistance turned support).
Trade Idea Wrap-up: GBP/USD – Sell at 1.3110
GBP/USD - 1.3023
Most recent candlesticks pattern : N/A
Trend : Near term down
Tenkan-Sen level : 1.3037
Kijun-Sen level : 1.3037
Ichimoku cloud top : 1.3162
Ichimoku cloud bottom : 1.3110
Original strategy :
Sell at 1.3110, Target: 1.3010, Stop: 1.3145
Position : -
Target : -
Stop : -
New strategy :
Sell at 1.3110, Target: 1.3010, Stop: 1.3145
Position : -
Target : -
Stop : -
As cable has remained under pressure after last week’s selloff from 1.3269 top, adding credence to our bearish view for this fall to bring retracement of recent upmove, hence bearishness remains for further decline to 1.3005-10 (100% projection of 1.3269-1.3112 measuring from 1.3165) but a break below support at 1.2999 is needed to retain bearishness, then subsequent fall to 1.2986 (61.8% Fibonacci retracement of 1.2812-1.3269) and possibly 1.2955-60 would follow.
In view of this, we are looking to sell cable on recovery as previous support at 1.3112 should limit upside. Only break of 1.3165 is needed to signal low is formed instead, bring a stronger rebound to 1.3200 but upside should be limited to 1.3240-50 and price should falter below said resistance at 1.3269.
Trade Idea Wrap-up: EUR/USD – Sell at 1.1830
EUR/USD - 1.1790
Most recent candlesticks pattern : N/A
Trend : Near term up
Tenkan-Sen level : 1.1796
Kijun-Sen level : 1.1771
Ichimoku cloud top : 1.1851
Ichimoku cloud bottom : 1.1841
Original strategy :
Sell at 1.1830, Target: 1.1730, Stop: 1.1865
Position : -
Target : -
Stop : -
New strategy :
Sell at 1.1830, Target: 1.1730, Stop: 1.1865
Position : -
Target : -
Stop : -
As the single currency found support at 1.1728 after dropping sharply on Friday, suggesting consolidation above this level would be seen and recovery to 1.1810-15 cannot be ruled out, however, reckon previous support at 1.1830 would limit upside and bring another decline later, below 1.1750 would bring test of 1.1723-28 (previous support as well as 61.8% Fibonacci retracement of 1.1613-1.1910), break there would add credence to our view that top has been formed at 1.1910 last week, bring further fall to 1.1700 but reckon support at 1.1650 would hold.
In view of this, we are looking to sell euro again on recovery as 1.1830 previous support should limit upside. Above the upper Kumo (now at 1.1851) would defer and risk a stronger rebound to 1.1870 but price should falter below said last week’s high at 1.1910, bring another decline later.
Trade Idea Wrap-up: USD/JPY – Buy at 110.45
USD/JPY - 110.71
Most recent candlesticks pattern : N/A
Trend : Near term down
Tenkan-Sen level : 110.79
Kijun-Sen level : 110.82
Ichimoku cloud top : 110.42
Ichimoku cloud bottom : 110.42
Original strategy :
Buy at 110.45, Target: 111.45, Stop: 110.10
Position : -
Target : -
Stop : -
New strategy :
Buy at 110.45, Target: 111.45, Stop: 110.10
Position : -
Target : -
Stop : -
Friday’s rally above 110.98 resistance signals a temporary low has been formed at 109.85 last week and consolidation above this level would be seen with mild upside bias for this rebound to bring retracement of recent decline, hence gain to 111.29-30 (previous resistance and 61.8% Fibonacci retracement of 112.20-109.85) is likely, however, break there is needed to add credence to this view, bring retracement of recent decline to 111.50 but price should falter below another previous resistance at 111.71.
In view of this, we are looking to buy dollar on dips as 110.40-50 should limit downside and bring another rise later. Below 110.15-20 would defer but only break of 110.00 would signal the rebound from 109.85 has ended, bring retest of this level, below there would extend recent decline to 109.70 and later towards 109.50.
Steady Global Economy
The twin upbeat jobs reports from the US and Canada on Friday underscored the momentum in the global economy and that shouldn't be lost in all the confusion about inflation. The US dollar was the top performer last week thanks to Friday's strong performance, while NZD, CAD and GBP were bunched up at the bottom of the pack. The RBNZ decision is on Wednesday, drawing attention to any fresh jawboning. It's a holiday in Australia and Canada to start the week. A new index trade with 3 supporting charts has been sent to the Premium subscribers. The chart below is the monthly chart of the instrument in question.
There is a temptation to lump together economic growth data and inflation. Historically, growth brings inflation and pushes interest rates higher. It's the backbone of economics 101. But that ignores the secular forces at work that are the real story. Globalization, automation, de-unionization and an excess of highly educated workers are deflationary drivers no matter if it's a recession or a growing economy. Central banks are slowly beginning to grasp it.
What's equally true is that many of those who are overly focused on inflation are missing the growth story. The US added another 209K jobs in July and Canada added 35K more full time jobs. There are jobs out there and it's a good environment for business.
Inflation and interest rates are a huge driver in the FX market but they're not the only driver. Growth is still a net positive and even if the US economy doesn't create any wage growth for 3 years, the dollar could still be the place to invest if growth is closer to 3% than 2%.
Commitments of Traders
Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
- EUR +83K vs +91K prior
- JPY -112K vs -121K prior
- GBP -29K vs -26K prior
- CHF -1K vs -2K prior
- AUD +61K vs +56K prior
- CAD +41K vs +27K prior
- NZD +35 vs +35K prior
The only sizeable shift was in the Canadian dollar and that combined with the lack of gains in the past week, make is wonder if the trade is overcrowded and due for a pullback. The US dollar side is a wildcard but if it can get any momentum, all the above currencies in a + position are vulnerable.