Market news and trade recommendations by FBS

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Jan. 10: Asian session

Asian shares were little changed on mixed Chinese trade data. Trade surplus contracted, but the jump at imports points to stronger domestic demand and may mean that the nation’s rebalancing away from a reliance on exports to fuel growth. MSCI’s broadest index of Asia-Pacific shares outside Japan inched up by 0.1%. Shanghai stocks trimmed early losses to be almost flat. Japan’s Nikkei also pared losses to be down 0.4%, while the Hong Kong market added 0.5%.

USD/JPY is trading just under 105.00. AUD/USD is trying to recover after having dipped to $0.8880 on China trade balance figures. NZD/USD remains under a slight bearish pressure for a fourth day in a row. Kiwi remains supported by the 55-day MA at $0.8246 as of writing. Australian and New Zealand dollars may be influenced by the US nonfarm payrolls data today.

EUR/USD found support at $1.3550 yesterday and rose to $1.3616 today. GBP/USD is trading in the $1.6480 area.

 

[FBS]

EUR/USD: Ichimoku analysis (Jan. 10)

Daily. The pair started the year with a decline. The strengthening of the US dollar contributed to the fall of the currency pair to the upper limit of the Ichimoku Cloud. Senkou Span B supported euro at $1.3560 – the pair was consolidating above this point last week. Short-term outlook turned bearish as Tenkan and Kijun formed a “dead cross” (C). However, pay attention to the fact that the Kijun-Sen (KS) went up immediately after the intersection. This may mean a recovery in the near term. Also note that the Ichimoku Cloud is still positive.

Chart. Daily EUR/USD

H4. The trend turned bearish at H4. The prices fell and Tenkan-sen and Kijun formed a “dead cross” (C), which is still relevant after almost two weeks. Ichimoku Cloud turned bearish. This indicates that the bears are gaining power. Nevertheless, the support at $1.3560 doesn’t give them the opportunity to continue the decline. During the last day the pair returned to the Tenkan and Kijun lines. If the prices fix above Kijun, they may rise to the lower boundary of the Cloud.

Chart. H4 EUR/USD

 

[FBS]

GBP/USD: Ichimoku analysis (Jan. 10)

Daily. During the past week GBP/USD managed to regain a bit the lost ground. Kijun-sen (KS) acted as support, which stopped the corrective decline at $1.6400. Note that a local minimum was formed a lower, in the $1.6340 area. Thus, the upward trend remains in both the short- and long-term prospects. A “golden cross” (C) is still in place. The Ichimoku cloud is bullish. If the prices fix above Tenkan, the bulls will continue purchases.

Chart. Daily GBP/USD

H4. At H4 the picture is not that smooth. After the pair recovered to the upper boundary of the Cloud, it found resistance at $1.6500. It may be difficult for the prices to break higher as Chinkou Span is in the overbought area. So, in the short term we can expect the depreciation to Tenkan after another attempt to get above $1.6500.

Chart. H4 GBP/USD

 

[FBS]

Jan. 13: Asian session

Asian shares rose. The MSCI Asia Pacific excluding Japan Index gained 0.5%, Shanghai Composite moved up 0.4%. Japanese markets are closed for a holiday.

USD/JPY fell almost to 1-month minimum in the 103.30 area as dollar bulls were disappointed by weak US NFP data released on Friday. Traders started reassessing how quickly the Federal Reserve can scale back stimulus.

AUD/USD strengthened to $0.9045, extending the upside after the Friday’s post-NFP jump. Aussie’s strength extends the chances for a base formation with a low at $0.8820. Australia ANZ job advertisements contracted a little bit below the forecast (-0.7% vs. -0.9% expected), while home loans came in line with forecast (+1.1% m/m). NZD/USD has also strengthened, testing the $0.8330 resistance.

EUR/USD is at $1.3677. GBP/USD is just below $1.6500.

 

[FBS]

Key currency options (Jan. 13)

Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (14:00 GMT).

Here are the key options expiring today:

EUR/USD: $1.3540, $1.3550, $1.3600, $1.3625;

GBP/USD: $1.6400;

USD/JPY: 102.50, 103.50, 104.00, 105.00, 106.00 (large);

EUR/GBP: 0.8270;

EUR/CHF: 1.2370.

 

[FBS]

CFTC: USD longs increased

Here are the essentials of the latest Commitments of Traders (COT) report, released on Jan. 10 by the Commodity Futures Trading Commission (CFTC) for a week ended on Jan. 7.

According to the report, large speculators increased their net long USD positions from $17.5 billion on Dec. 31 to $21.1 billion on Jan. 7. This is the best level since Sep. 10 when the US dollar bullish bets equaled to $22.0 billion.

EUR/USD

GBP/USD

USD/JPY

 

[FBS]

Jan. 15: Asian session

Asian shares were mostly higher on Wednesday as the World Bank upgraded its outlook for the global economy. US dollar extended gains versus its counterparts due to surprising strength in US consumer spending. Japanese Nikkei bounced by 1.8% after suffering its sharpest daily drop in 5 months on Tuesday. MSCI's broadest index of Asia-Pacific shares outside Japan was little changed.

USD/JPY recovered to 104.40. AUD/USD slid to $0.8915. NZD/USD slipped to $0.8333.

EUR/USD fell to $1.3630. GBP/USD is trading at $1.6422.

 

[FBS]

Jan. 17: Asian session

Asian stocks swung between gains and losses before China reports economic data next week. Nikkei fell by 0.8% following Wall Street lower on the disappointing US corporate earnings, while exporters sagged as the weak-yen trend took a pause. MSCI Asia Pacific Index erased a 0.4% drop.

USD/JPY is trading at 104.33 after testing 104.92 yesterday. Japanese consumer confidence declined. AUD/USD is consolidating in a tight $0.8830/00 range after having hit a low of $0.8878 yesterday (lowest since August 2010). NZD/USD is the main loser of this Asian session, falling by more than 60 pips to $0.8285. Despite the recent NZD decline, the market remains generally long on the kiwi in expectations of RBNZ rate hike in the near future.

EUR/USD is in the $1.3625 area, down from yesterday’s high at $1.3649. GBP/USD is down to $1.6333, but above yesterday’s low at $1.6314.

 

[FBS]

Jan. 20: Asian session

Asian shares dropped to a 6-month low as a bit better China GDP was not enough to overcome risk aversion. Q4 GDP grew by 7.7% (down from 7.8% of Q3, but barely above the forecast of 7.6%). China December industrial production rose by 9.7% y/y (slightly below the expected 9.8%) while retail sales climbed 13.6% as expected. Nikkei index dropped to a one-week low, tracking declines in US shares. MSCI Asia Pacific has pared some losses, but is still down by 0.2%. Market liquidity is thin as the US markets are closed in observance of Martin Luther King Day.

USD/JPY found support at 103.90 after a sell-off in the Asian trade. AUD/USD has recovered a bit after hitting $0.8760 (lowest since July 2010). Aussie is slightly supported by China GDP figures. NZD/USD is trading in a narrow $0.8265/30 range.

EUR/USD is hovering in the $1.3510/30 range, a little bit below the Friday low. GBP/USD is trading around $1.6415.

 

[FBS]

EUR/USD with Commerzbank

Analysts at Commerzbank point out that EUR/USD eroded 6-month uptrend and the Ichimoku Cloud support at $1.3564. The specialists say that the 4-month support line at $1.3516 has become vulnerable. If euro falls below this level, it will make another leg lower.

The bank has set targets at $1.3348/1.3295 (recent low, Fibo and 200-day MA). Support lies at $1.3525 (Dec, 2 low) and $1.3458 (38.2% retracement of the move up from July). The pair will consolidate at the latter. Resistance is at $1.3607/29 (short term downtrend).

 

[FBS]

Jan. 22: Asian session

Asian shares swung between gains and losses as the Bank of Japan pledged to maintain economic stimulus and the International Monetary Fund raised its global growth forecast. The MSCI Asia Pacific Index added 0.1%. Japanese Nikkei rose by 0.3% after an initial dip. China’s Shanghai Composite Index rose 1.7%.

USD/JPY rose to 104.50. The Bank of Japan has refrained from signaling additional stimulus today. The regulator downgraded the nation’s GDP forecast for 2014/2015 financial year from 1.5% to 1.4%. The BOJ governor Haruhiko Kuroda is due to hold a press conference later today.

AUD/USD jumped by more than 80 pips to $0.8870 on higher than expected Australia inflation data. Q4 CPI came at 0.8% q/q vs. expected is 0.4% and prior 1.2%. January Westpac consumer sentiment fell less than expected (-1.7% vs. -4.8% in December). Market expectations of RBA rate cut fell after the today’s releases. NZD/USD is trading in a narrow $0.8300/25 range.

EUR/USD tested $1.3580 before sliding to $1.3560. GBP/USD reached $1.6490.

 

[FBS]

Jan. 28: Asian session

Asian shares weakened to nearly 5-month lows on Tuesday on concerns about the emerging markets, but then managed to recover on some encouraging news from Turkey and China. Turkey’s central bank may raise interest rates at an extraordinary meeting today, while China’s largest lender said that investors in a troubled high-yield trust can recoup funds. Nikkei hit 2 1/2-month intraday low before recouping the losses to trade 0.2% above its previous close. MSCI Asia Pacific Index of shares was little changed after dropping 3.7% over the previous 3 days.

USD/JPY is trading in the 102.60 area, below yesterday’s peak at 102.93. The greenback rose against yen before the Fed begins a 2-day meeting amid forecasts it will cut monthly asset purchases by $10 billion.

Commodity currencies are trading to the upside. AUD/USD extends growth for a second day in a row, but faced resistance at $0.8800. Australia NAB business confidence for December came at 6. The prior reading was revised up from 5 to 6. Business conditions index for December rose from -3 to a 2.5-year high of 4. NZD/USD strengthened to $0.8275 after forming a long-legged doji candle with a low at $0.8200 on Monday.

EUR/USD is trading in the $1.3670 area, below yesterday’s peak at $1.3717. GBP/USD rose above $1.6600.

 

[FBS]

Emerging markets: what’s the problem?

There were a lot of concerns about emerging markets during the recent days. Why there are problems in so many countries simultaneously? There are the following general reasons behind the depreciation: a contraction in Chinese manufacturing, concerns about the impact of the Fed’s stimulus tapering, a variety of more local problems, ranging from troubled economic institutions to political unrest.

Argentina

Argentinean peso survived the biggest depreciation 12 years. In lost 15% of its value last week when the central bank briefly stopped supporting the national currency. Earlier the central bank spent huge sums to slow down peso’s fall. These efforts reduced Argentina’s foreign-currency reserves to about $29 billion from around $43 billion a year ago. Inflation is believed to account for 30%. There’s a big gap between the official exchange rate (around 8 peso per USD) and the black market rate (more than 12 peso per USD). This gap reinforces expectations that peso will devalue even more.

Turkey

Turkish lira has lost about 16% against dollar since Dec. 17, when the arrest of the sons of 3 cabinet ministers exposed a corruption investigation which threatens Prime Minister Tayyip Erdogan and his government’s standing. The nation’s central bank has persistently refused to raise interest rates to defend the currency. Erdogan was opposing the hike, because he wanted low rates to boost economic growth as elections approach. As a result, the central bank had to reduce its foreign currency reserves to give lira some support. Still, it’s clear that it doesn’t work and the regulator has an emergency meeting today. A rate hike’s widely expected.

Currencies likeSouth African rand, Russian ruble, Unraine hryvnia, Chilean peso continue their fall. Pimco thinks that once the risk aversion abates, people will start to differentiate again and currencies would recover. Others say the declines are sowing the seeds of problems for developing nations because weaker currencies would push up overseas debt payments for countries, damping the outlook for their economies.

 

[FBS]

Key currency options

Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (14:00 GMT).

Here are the key options expiring today:

EUR/USD: $1.3590, $1.3670, $1.3680, $1.3700;

USD/JPY: 102.00, 102.40, 102.90, 103.00, 103.80, 104.00;

AUD/USD: $0.8700, $0.8875;

USD/CAD: 1.0940;

EUR/GBP: 0.8265;

EUR/JPY: 141.20;

AUD/JPY: 91.30.

 

[FBS]

China: the imminent debt crisis?

The risk of a credit crunch is hanging over China. The pace of the nation’s debt increase is extremely high. China’s local governments have public debt of $3 trillion. This week one of Chinese trusts has managed to avoid default, presumably, thanks to a bailout. Still, this raises many questions about the nation’s financial future. The nation’s extraordinary economic growth used to be a wonder and an example for others. However, it seems that this growth is now being built on the growing reliance on debt that will be difficult to repay. The existence of a huge shadow banking sector which, according to some estimates, equals 40% of GDP, makes the problem ever more serious.

 

[FBS]

Morgan Stanley: short on USD/JPY

USD/JPY extends the upside, breaking above the sell orders around 102.80. Will the buyers manage to push through the 103.00 mark or the bearish correction will deepen further?

Morgan Stanley expects the pair to move even lower. They opened a sell-limit USD/JPY order at 103.00, with a stop at 104.00 and a target at 100.60. "We expect JPY to regain support as broader risk appetite is tested. Signs of Chinese growth slowing are likely to impact Asia regional risk appetite in particular, which will be JPY-supportive, in our view", analysts clarify.

 

[FBS]

FX BAZOOKA: technicals (Jan. 28)

EUR/USD

EUR/USD remained between $1.3700 and $1.3650, 50% and 38.2% Fibo of the decline from $1.3890 to $1.3507. MAs remain horizontal, so do the lines Tenkan and Kijun. MACD is in the positive area, but below the signal line and declining. The desire of the bulls to move higher is confronted by the expectations of another $10B reduction in the Fed’s QE. The pair needs some additional drivers.

Resistance: $1.3700, $1.3750, $1.3800

Support: $1.3670, $1.3640, $1.3600

Chart. H4 EUR/USD

Upcoming events

EUR - All day - ECOFIN Meetings

USD - 13:30 GMT - Core Durable Goods Orders, Durable Goods Orders

USD - 14:00 GMT - S&P/CS Composite-20 HPI

USD - 15:00 GMT - CB Consumer Confidence

 

[FBS]

GBP/USD

GBP/USD extends growth for a second day in a row, breaking above $1.6600. The pair is moving towards the recent high of $1.6670. Cable remains supported by the January rising trend line ($1.6515 as of writing). General market sentiment is bullish. MACD histogram rose above the signal line. RSI is close to the overbought zone. Watch the UK Q4 GDP today – the forecast is a little bit to the downside.

Support: $1.6600/6590, $1.6565, $1.6470

Resistance: $1.6670, $1.6740

Chart. H4 GBP/USD

Upcoming events:

GBP – 9:30 GMT – Preliminary Q4 GDP, Index of Services

 

[FBS]

USD/JPY

USD/JPY keeps consolidating below 102.80. The pair needs to rise above 102.85 to extend the recovery. The negative MACD crossed the signal line to the upside (bullish signal). On the daily chart the pair is supported by the bullish Cloud.

Support: 102.40, 102.00, 101.75, 101.60

Resistance: 102.85, 103.00, 103.60

Chart. H4 USD/JPY

 

[FBS]

USD/CHF

The pair still looks bearish as long as it holds below $0.8985. We expect the greenback to extend the downside. The negative MACD crossed the signal line to the upside (bullish signal). Ichimoku Cloud remains bearish. 55-period MA crossed the 100-period MA to the downside.

Support: $0.8900, $0.8800

Resistance: $0.8985,$0.9030, $0.9090, $0.9130

Chart. H4 USD/CHF