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02-06-2014, 12:12 PM
What Could Bring Oil Prices Down?
The price of oil has been trading close to the $100 mark in recent months. But the latest developments in the oil market might cut down the price of oil price to the low $90 in the near future. Let’s examine the recent changes in the oil market and see how these changes might affect leading refinery companies.'

The oil market loosens

Based on the U.S Energy Information Administration , during January, refinery inputs have declined by 3.2% to reach, as of last week, 15.625 million barrels per day. Conversely, the U.S oil supply has improved: During the past month, oil imports have increased to 7.61 million barrels per day — a 2.8% increase. Further, oil production has inched up by 0.1% Thus, the total supply (comprising of imports and production) has increased by 1.4%. This means, in recent weeks there was a rise in supply and a drop in demand. These recent developments suggest the U.S oil market has loosened in the past several weeks. If this trend persists, it could further cut down the price of oil to reach the low $90. The oil market in Europe has also loosened in the past month, and the EIA estimates Europe’s demand for oil will continue to fall in 2014.

Thus, the looser oil market may have contributed to the decline in the spread between Brent oil and WTI oil. The chart below shows this spread in the past several months.

http://pcm-fx.com/pcmupload/uploads/1391674222491.jpg (http://pcm-fx.com/pcmupload/)

As you can see, the spread between Brent and WTI has declined in the past several months.

Despite the latest fall in the spread, on a yearly scale the EIA estimates the average spread will be $12 a barrel. In comparison the spread was around $10.8 per barrel in 2013.

In 2014, the EIA projects a 13% increase in U.S oil production to reach 8.5 million bbl/d. Conversely, U.S oil consumption is expected to remain unchanged during the year. Moreover, OECD oil consumption is estimated to decline by 0.1 million bbl/d – mainly due to lower consumption in Europe and Japan. Thus, the looser oil market could cut down the price of oil in 2014.

The recent developments in the oil market will also affect leading oil refineries such as Valero Energy (NYSE:VLO) and Marathon Petroleum (NYSE:MPC).

Will refinery companies rally?

In the fourth-quarter, Valero Energy hasn’t improved its operations: Its profitability remained stable at around 5.4%. Moreover, the company’s revenue inched down by 0.8%, year over year. The company’s revenue remained nearly unchanged because the rise in throughput volumes was offset by the decline in throughput margins. Looking forward towards the first quarter of 2014, the company could experience a further rise in throughput volumes but margins are likely to decline. During January 2014, the price of oil was nearly the same to the price of oil in January 2013. If the price of oil remains at its current level, this could suggest oil refineries won’t improve their revenues. But the gap between Brent and WTI has contracted from $17.4 per barrel in January 2013 to $12.5 per barrel in January 2014.

Marathon Petroleum , unlike Valero, increased its revenues by 20% during the fourth- quarter. Despite the spike in revenue, the company’s profitability narrowed from nearly 5.7% to 4% in the fourth-quarter. The jump in revenue was due to company’s increase in refinery throughputs by 27%; the higher throughputs were because of Marathon Petroleum’s decision to purchase the Galveston Bay refinery back in February 2013. This higher volume was offset by a 4% decline in refinery margins.

For the first-quarter of 2014, however, the recent fall in the gap between Brent and WTI is likely to cut further down these companies’ profitability and revenues. Finally, the recent drop in refinery input, as stated earlier, could also suggest a potential fall in throughput volumes for the above-mentioned companies.

In conclusion…

The latest development in the oil market might adversely affect refinery companies. The expected drop in oil prices and lower discount on WTI oil over Brent oil could result in a decline in revenues and narrower profit margins for these oil companies. Finally, the oil market may continue to loosen in the coming months on account of higher oil production and stable consumption. This trend could bring oil to the low $90

02-06-2014, 12:15 PM
Why Silver Isn’t Pulling Up?
The price of silver fell during January. Why silver isn’t recovering? What’s up ahead for the silver market? Let’s analyze the recent news that may affect silver (SLV).The drop in silver price has also reflected in the drop in demand for leading silver ETFs such as iShares Silver Trust. During January, the Silver Trust’s silver price decreased by 1.7%. The last FOMC meeting may have contributed to the decline of silver price. Let’s further explore this issue.

FOMC’s monetary policy and U.S economy

Last week, the FOMC decided to taper again QE3 from $75 billion to $65 billion; this news pressured down the price of silver.

The table above shows the silver market’s reaction to the FOMC’s decisions in 2013 and 2014. In the last three meetings, the price of silver tumbled down. If the FOMC continues to cut down its asset purchase program at its current pace, this could adversely affect the price of silver in the short term. But the FOMC might slow down its tapering process. The upcoming non-farm payroll report will be released at the end of this week

02-06-2014, 12:20 PM
Is Chesapeake Heading at the Right Direction? <br />
Chesapeake Energy (NYSE: CHK) will release its 2014 outlook at the end of this week and its fourth-quarter earnings report by the end of the month....

02-24-2014, 01:21 PM
Will Silver Keep Heating Up?
The price of silver rose during last week and reached its highest level this year. Will the silver market continue to rally? Let’s examine the recent news that may affect the price of silver (SLV).

The recent recovery of the price of silver has reflected in the rise in demand for silver ETFs such as iShares Silver Trust. During February, the Silver Trust’s price increased by 13.6%, and the amount of silver in the Trust rose by 1.5% to 164.24 tons. Silver related investments such as Silver Wheaton (SLW) also rallied during this month – the stock is up by 19%, up-to-date. Looking forward, the changes in the U.S dollar, gold price, and the FOMC’s policy could be among the factors affecting the direction of silver. Let’s further explore these factors.

The Fed’s policy and silver

The decision of the FOMC to taper QE3 in the past two meeting has started to slowly affect the yields of U.S long term securities. Conversely, the price of silver doesn’t seem to be affected by the FOMC’s mini-taper. Silver and U.S long term securities are considered safe haven investments. But the demand for silver as an investment hasn’t diminished, even though the market sentiment seems to have shifted towards risk seeking. The chart below shows the movement of the price of silver and U.S 10 year treasury yields during February.

02-26-2014, 10:53 AM
Will Natural Gas Change Direction?
The price of natural gas reached its highest level in recent years. The rally of natural gas was mainly due the colder than normal weather and the very low storage levels. Looking forward, will the price of natural gas change direction anytime soon? And, how will the recent rise in the price of natural gas affect the performance of natural gas companies including Devon Energy (NYSE:DVN)?

Natural gas continues to heat up

The recent rally in the price of natural gas is mostly related to the sharp rise in the demand for natural gas for heating purposes due to the colder than normal weather mainly in the Northeast and Midwest. For the 2013-2014 winter, the Energy Information Administration expects the natural gas consumption for heating will be 3.3% higher than last year’s winter. Further, the U.S average heating degrees days, which measure the demand for energy needed to heat a building, will be 3.8% higher this winter than last year’s. Thus, the sharp rise in the demand for natural gas in the residential and commercial sectors has led to high extractions from the natural gas storage.

The chart below shows the changes in the natural gas storage and the weekly price of natural gas in the past several years.

http://pcm-fx.com/pcmupload/uploads/1393397228721.jpg (http://pcm-fx.com/pcmupload/)

As you can see, the current storage level is at its lowest level in recent years. Further, the current storage is roughly 40% lower than last year. The extraction season is likely to continue until March-April. The current low levels are likely to keep the price of natural gas elevated.

Due to the recent developments in the natural gas market, the Energy Information Administration revised up its estimates for 2014 and predicts the price of natural gas will reach an annual rate of $4.17/ MMBtu — roughly 12% higher than in 2013. The EIA also expects the natural gas production will increase by 2.2% during the year. The consumption is projected to rise to 70.2 Bcf/day in 2014. In the coming weeks, as the temperatures will start to pick up, the demand for natural gas in the residential and commercial sectors is likely to decline. Moreover, the sharp rise in price of natural gas is likely to cut down the demand for natural gas in the power sector.

Investors of the natural gas ETF United States Natural Gas (NYSEMKT: UNG) will only partly benefit from the rally of natural gas mainly due to the Contango in the natural gas market, in which the price of long term future contracts are higher than short term future contracts. The Contango in this market tends to reduce this ETF’s value compared to the price of natural gas. A more detailed explanation could be found in a recent article (http://www.fool.com/investing/general/2013/12/11/will-the-natural-gas-market-continue-to-recover.aspx) I wrote on this issue. Let’s demonstrate the difference between the performance of UNG and the price of natural gas in the following the chart, in which prices are normalized to the beginning of the year.

http://pcm-fx.com/pcmupload/uploads/1393397228792.jpg (http://pcm-fx.com/pcmupload/)

The chart shows the prices of UNG and natural gas have parted ways in the past several weeks. This occurrence tends to develop during the winter when the price of the Henry Hub spikes due to sharp changes in the supply and demand. Over long period of time, this gap is likely to further widen. Therefore, investors should be advised to consider this issue when they consider going long on natural gas with UNG during winter time. Other ways to benefit from the recovery of natural gas is by investing in natural gas related companies such as Devon Energy.
Devon Energy

The company’s natural gas production declined in 2013 by 6.8% to reach 873.6 Bcf. Conversely, Devon Energy’s oil production rose by 14.7% during last year. Despite this decline in the natural gas production, the revenue from natural gas still accounted for roughly 31% of the company’s total oil, gas and NGL sales in 2013 — a similar rate as in 2012.

The company’s decision to acquire (http://www.fool.com/investing/general/2013/12/18/will-devon-energys-eagle-ford-acquisition-pay-off.aspx) GeoSouthern Energy’s assets in Texas’ Eagle Ford shale for $6 billion in cash back in November 2013 is expected to further increase the Devon Energy’s oil and NGL production in the coming years. This decision could also reduce the company’s exposure to the changes in the natural gas market. Nonetheless, the recent jump in the price of natural gas is likely to reflect in higher revenue in the first quarter of 2014.

Final note

Natural gas is likely to remain at its currently high level in the near future. But once the temperatures will pick up in March-April, the price of natural gas is projected to come down. Finally, on a yearly scale, natural gas is expected to be higher than in 2013, which could benefit natural gas companies.

04-07-2014, 04:42 PM
Update: 8 April 2014

Japan rate decision: Tuesday. The Bank of Japan maintained its accommodative monetary policy for the sixth consecutive month, to help the ongoing growth trend in Japan’s economy. Deflation fears have subsided while the BOJ strives to achieve a 2% inflation rate. The bank also upgraded its assessment on capital investment amid a pick-up in business activity. This is the first decision of the BOJ after the sales tax hike and it comes in the one year anniversary of Kuroda’s monetary blitz.
US JOLTS Job Openings: Tuesday, 14:00. The US economy increased its Job openings to 3.974 million in January from December’s revised print of 3.914 million. However the reading was below market forecast of 4.015 million. The hiring rate and separation rate remained nearly unchanged at 3.3% and 3.2%, respectively. The Federal Reserve’s new chair Janet Yellen highly regards JOLTS Report as a good indicator for hiring in the US economy. Jobs openings in February are expected to reach 3.99 million.

06-30-2014, 08:42 PM
Will Silver Change Direction and Fall?
The recovery of the price of silver slowed down in the past week; it finished the week above the $21 mark – silver’s highest level since mid-March. But the upcoming non-farm payroll report could change the course of this precious metal. Let’s see why.

During the previous week, silver inched up by 0.75%. Further, other silver related assets also increased last week: Silver Wheaton (SLW), iShares Silver Trust (SLV), Pan American Silver (PAAS) rallied by 4.1%, 0.6% and 2%, respectively.

U.S labor market and silver

This week the U.S non-farm payroll report will be released. In the previous report, 217,000 jobs were added during May, which was inline with the market expectations. The table below shows the changes in the price of silver, USD/Yen and the rise in number of jobs.

In the past, the rise in number of jobs tended to lead to an appreciation of the USD and a drop in bullion prices. Moreover, in the past, precious metals and change in number of added jobs had a strong correlation (under certain assumptions).

07-03-2014, 01:47 PM
Is Chesapeake Energy’s NGL Strategy Right?

The decision of Chesapeake Energy (NYSE: CHK) to increase its production of natural gas liquids raises the question of whether this is the right move for the company, and how will this play impact its bottom line. Also, what are the main opportunities and challenges this move entails? Let’s tackle these issues.

Growing business

Chesapeake Energy expects to augment its NGL production by 63% to 68% during this year. In the first quarter, its output grew by 55%, year over year. Further, the NGL operation expanded by a faster pace than Chesapeake Energy’s oil or natural gas productions during the first quarter. This year, NGL will account for 13% of the company’s total output; back in 2013, it accounted for only 9%, and back in 2012 it was 7%. Most of Chesapeake Energy’sNGL production comes from its Mid-Continent, Eagle Ford Shale and Utica Shale operations.

The company’s decision to increase its NGL operations is part of the growing NGL business in the U.S. According to the U.S Energy Information Administration, volume of liquids (including NGL and methane) extracted from wet natural gas wells grew at an average of 7% per year between 2008 and 2013. Other oil and gas producers such as Anadarko Petroleum (NYSE:APC) and Marathon Oil (NYSE:MRO) have also expanded their NGL operations in the past year and are expected to keep doing so in the near term. But the growing supply of NGL may have a negative impact on its price in the coming years.

High NGL prices – will they last long?

NGL is mostly comprised of ethane and propane. These two commodities’ prices are affected by the cold weather. The harsh winter in the U.S drove higher the prices of ethane and propane, which led to an increase in the price of NGL in previous months. Moreover, the prices of NGL are considered correlated with crude oil prices. In the past several years, this relation with oil gave NGL prices a premium over natural gas.

The current price of NGL is still elevated at around $40 per barrel, which is 14% higher than last year. Since the harsh winter conditions have subsided in the past several weeks, the demand for these commodities are likely to come down, which could pressure down the price of NGL. Moreover, in the coming years, the EIA estimates the rise in liquids production will have a negative impact on the prices of ethane and propane, which will also bring down NGL prices. Nonetheless, for now, the current elevated prices of oil are likely to keep NGL prices higher than last year’s levels.

High margins on NGL

Due the premium NGL prices have over natural gas prices (as stated above), this premium also suggests NGL may offer higher profit margins for Chesapeake Energy compared to natural gas. Thus, the company could improve its profitability in the coming years as its NGL production takes a bigger role out of its total output.

In conclusion…

Chesapeake Energy is making the right move by expanding its NGL production. Nonetheless, the potential decline in prices of NGL could reduce its appeal and thus make this move less profitable in the coming years.

Disclaimer:The author holds no positions in stocks mentioned and does not plan to initiate positions within 120 hours of the posting of this article. This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact.

07-11-2014, 02:03 PM
What is Driving Royal Gold Higher?
Royal Gold (NASDAQ: RGLD) has outperformed other royalty and streaming precious metals companies such as Silver Wheaton (NYSE: SLW) in the stock market during this year (up to date). What is driving the company’s stock so high besides the recent recovery of the price of gold?

Rise in attributed production

Royal Gold expects to sharply increase its attributed production of gold and silver during this year. The table below summarizes the expected attributed production from Royal Gold’s royalty and streaming agreements in 2014 and the attributed output in 2013.

As you can see, most of the company’s growth in attributed production will come from its royalty agreement with Barrick Gold (NYSE: ABX) and its Cortez gold mine in Nevada and Mt. Milligan, which is produced by Thompson Creek Metals (NYSE:TC). Further, Royal Gold also expanded its royalty contract on Cortez NVR1 to receive a higher production from Barrick Gold.

Conversely, Silver Wheaton doesn’t plan to increase by much its attributed production this year — the company expects to increase its operations by only 0.5% and reach 36 million silver equivalent ounces.

Looking forward, Royal Gold will see additional growth in its operations from other developing assets such as Barrick’s Goldrush project in Nevada. Royal Gold plans to receive 1% of net revenue royalty from this deposit. Barrick estimates the project will start producing by mid-2015.

Moreover, earlier this year, Royal Gold entered into another royalty agreement with Rubicon Minerals (NYSE:RBY) to partly finance the construction of the Phoenix Gold Project in Ontario, Canada. In exchange for a $75 million investment, the royalty company will receive 6.3% of the gold produced up to 135,000 ounces. Afterwards, it will receive 3.15% thereafter. These types of contracts will further expand Royal Gold’s revenue in the coming years and will keep driving the company’s stock higher.

But Royal Gold may receive gold from Barrick Gold’s Pascua-Lama project at a much later than expected date. Royal Gold has a royalty agreement on the Chilean side of the Pascua-Lama mine. Barrick Gold had to delay the construction of this mine at the end of last year and has yet to reopen it. The company’s high burden of debt and ongoing challenges it faces related to this mine might eventually lead it to sell this asset. Nonetheless, Royal Gold doesn’t expect this delay will adversely impact its investment except for the delay in delivery.

Steady profit margins

Despite the low price of gold in the past year compared to previous years, Royal Gold was able to maintain its operating profit margin, as indicated in the chart below.

Despite the plunge n the quarterly price of gold in the past few quarters, the company was capable to maintain a hefty profit margin of above 40%. In the past quarter, its profitability rose to 50% — the highest level since the second quarter of last year. If the profitability keeps improving, this trend could further improve Royal Gold’s valuation.

Low debt

The ongoing rise in Royal Gold’s operations through investments didn’t result in a sharp increase in its level of debt. As of the end of March 2014 Royal Gold’s debt-to-equity ratio was only 13%. In comparison, Silver Wheaton’s ratio was 29%. Moreover, Royal Gold has about $646 million in cash on hand, which will allow it to strike additional royalty agreements in the coming months. The company’s healthy balance sheet will keep its financial risk low.

Bottom line

Royal Gold is making the right decisions by expanding its operations mainly in the U.S and Canada. These decisions are likely to keep augmenting the company’s revenue; as long as the price of gold doesn’t come back down, Royal Gold’s stock is likely to keep heating up.

07-11-2014, 04:56 PM
Euro zone economic data disappoints
European bourses declined for a fifth consecutive day, to their lowest level in 2014 as the banking turmoil in Portugal took center stage. Banco Espirito Santo SA led the way in losses as its stock sank 16% on news that Espirito Santo International SA could be requesting for bankruptcy protection in Luxembourg should it be unsuccessful in reaching a debt renegotiation agreement with its main creditors. Banque Privee Espirito Santo suspended trading its bonds and shares today following its inability to make payments of some of the last maturities of short-term debt securities issued by Espirito Santo International. The pressure from the banking sector has led yields in Portugal to rise from their 3.2% low in June to 4.0% today.

In fundamental data from the euro zone, economic readings for industrial production in Italy and France disappointed at -1.8% y/y and -3.7% y/y respectively and highlight concern about euro zone growth for the second quarter. Further, deflation risk is accelerating for France with headline consumer rising only 0.%% in June on an annualized basis, below the 0.7% anticipated. This may place further burden on the ECB to ease monetary policy in the near term.

The pound has retreated from an intraday high of 1.7166 to trade slightly about the 1.7100 handle as UK trade deficit widened to £-9.204 billion in May from £-8.812 billion in April, largely attributed to weaker exports to the EU which represents just over half of UK exports. The Bank of England in its interest rate decision maintained rates at a record of low of 0.5% and the size of its asset purchase facility at £375 Billion. Despite Bank of England Governor Carney’s hints last month that the BOE may raise interest rates “sooner than markets currently expect”, today’s statement suggest that members of the MPC would need evidence that there is less slack in the economy before voting for a rate hike. A key area that will be scrutinized will be wage growth which has lagged despite subdued inflation. The composition of voting members within the central bank could prove important as the bank has recently replaced a known hawk, Spencer Dale with Andy Haldane who warned of the risks of embarking on a quantitative easing program. Two other members that will participate in the policymaking board next month include Nemat Shafik and Kirstin Forbes, who are relative unknowns.

As we head into the North American session, yesterday’s release of FOMC minutes has proven to stabilize markets as disappointing data from China and euro zone has weighed on indices. Trade figures from China released overnight, was much lower than estimates at $31.6 billion with exports and imports both missing the mark. Exports rose 7.2%, against consensus of 10.6% and imports climbed 5.5%, missing expectations of 5.8%. A slower than anticipated recovery could propel the Chinese government to inject more stimuli into the economy.

FOMC minutes acknowledged improvements in the labor market, alluded that the risks to jobs, growth and inflation were broadly balanced and confirmed that quantitative easing will end in October with a final $15 billion reduction in asset purchases. In economic data, jobless claims declined to a near seven year low of 304,000 from 315,000 the previous week. Later this morning, we will see the release of May Wholesale inventories expected to rise 0.6%.

The Canadian dollar is soft but continues to trade within its recent range, pressured by global outlook for the second quarter. In domestic news, New Housing Price Index declined to 0.1% from 0.2% in May month-on-month, with markets turning their attention to tomorrow’s employment report and next week’s Bank of Canada meeting. Sentiment for USD/CAD has not turned bullish, though a combination of lower oil prices, weaker global growth outlook for Q2, increasing US-CN two year spread and decreasing pressure on the Bank of Canada to tighten policy, could suggest loonie weakness going forward.

07-14-2014, 05:04 PM
Global Sentiment Levitation To Start the Week
Risk appetite has gotten a boost this morning, with optimistic buying patterns emerging throughout the Asian and European sessions which has global equities off to a positive start for the new trading week. While Germany would like to think their 1-nil victory over Argentina to take their fourth World Cup was the catalyst to drive the Euro higher this morning, it has more to do with tightening of spreads between Portuguese and German debt as the worries of contagion due to the Banco Espirito Santo continue to fade. A new CEO and executive team along with assurances from Portugal’s prime minister that taxpayers would not be called upon to bail out failing banks, has calmed participants worries, and lead to positive price action so far this morning. The FTSE, Dax, and Stoxx are all well in the green midway through their session, while EURUSD remains well-bid above the 1.3600 handle. The one thing that could cap any further EUR exuberance is the fact that Mario Draghi is speaking later today at the European Parliament’s Economic and Monetary Affairs committee at 13:30 EST, and may likely try and talk down the common-currency by referencing its resilience and the negative consequences on dis-inflationary pressures within the zone.

The North American economic calendar is light today, but central bank policy makers take center stage later in the week with Janet Yellen testifying before Congress on Tuesday and the Bank of Canada meeting on Wednesday. The USD’s performance has been less than inspiring after the minutes of the last FOMC meeting were released, though Yellen’s remarks at the semi annual congressional testimony will give market participants another crack at deciphering hints at the future path of monetary policy. With the hawkish undertones from regional presidents remaining in the minority on the FOMC it is likely Yellen continues to sound dovish and telegraph the Fed could accept more inflation in order to hit it’s employment mandate – though this argument is getting tougher to defend with the unemployment rate creeping ever closer to their target. The big dollar is firmer against the Yen this morning, heading into the mid-101s as US yields find some support and the Nikkei adds 0.88% to its valuation.

There is a slight residual hangover from the weak employment numbers experienced on Friday that are weighing down the Loonie this morning, though soft price action in the commodity space with WTI closing in $100/barrel and Gold is down almost $20/ounce isn’t helping matters for the commodity-linked currency either. The highlight of the week for Loonie traders will be the Bank of Canada interest rate meeting on Wednesday, and while some had been expecting the BoC to sound a little more hawkish than the have in the past as the downside risks to inflation have eased, the employment numbers on Friday will likely have the BoC keep their balanced tone and reiterate there is more slack in the labour market that will need to be worked out before the central bank can contemplate tightening lending conditions.

07-24-2014, 04:25 PM
EUR/USD Fundamentals

7:00 French Flash Manufacturing PMI. Estimate 48.5 points, actual 47.6 points.
7:00 French Flash Services PMI. Estimate 48.9 points, actual 50.4 points.
7:00 Spanish Unemployment Rate. Estimate 25.9%, actual 24.5%.
7:30 German Flash Manufacturing PMI. Estimate 52.2 points, actual 52.9 points.
7:30 German Flash Services PMI. Estimate 54.7 points, actual 56.6 points.
8:00 Eurozone Flash Manufacturing PMI. Estimate 52.0 points, actual 51.9 points.
8:00 Eurozone Flash Services PMI. Estimate 52.7 points, actual 54.4 points.
8:00 Eurozone Italian Retail Sales. Estimate 0.4%, actual -0.7%.
12:30 US Unemployment Claims. Estimate 310K.
13:45 US Flash Manufacturing PMI. Estimate 57.5 points.
14:00 US New Home Sales. Estimate 485K.
14:30 US Natural Gas Storage. Estimate 95B.

*All times are GMT.

For more events and lines, see the Euro to dollar forecast.

EUR/USD Sentiment

Euro PMIs positive: Eurozone PMIs were released on Thursday, and the news was generally encouraging. German Services and Manufacturing PMIs improved in June and beat their estimates. Services PMI was particularly impressive, hitting a three-year high, at 56.6 points. In the Eurozone, Services PMI easily beat the estimate, while Manufacturing PMI met expectations. In France, however, the PMI data failed to keep pace with its European counterparts. Manufacturing PMI came in below the 50-point level for a second straight month, which points to contraction in the manufacturing sector. Services PMI pushed above 50 for the first time since March, indicating expansion.

US inflation numbers unimpressive: US numbers were a mix on Tuesday. Inflation numbers continue to struggle, as Core CPI posted a paltry gain of 0.1%, shy of the estimate of 0.2%. The key index has looked anemic in 2014, with its highest gain this year at just 0.3%. CPI was a bit stronger, as it gained 0.3% last month, matching the forecast. Meanwhile, Existing Home Sales jumped to 5.04 million, surpassing the estimate of 4.94 million. This was the best showing we’ve seen since October, and follows a disappointing release from Housing Starts, which was published last week.

Fed hints rate hike likely in 2015: Federal Reserve Chair Janet Yellen concluded two days of testimony on Capitol Hill last week. Yellen declined to directly answer questions about when the Fed would begin to raise rates, but she did acknowledge that most economists expect the Fed to make a move in the third quarter of 2015. The note about “stretched valuations” in some sectors of the equity markets caught investors’ attention and could serve as a hint that the Fed is set to tighten sooner. The dollar eventually reacted positively.

Ukraine tensions weigh on euro: Geopolitical tensions are bad news for the markets, which crave stability. With violence continuing in Ukraine nervous investors have rallied around the safe-haven US dollar at the expense of other currencies, including the euro. Last week’s downing of a Malaysian Airlines jet, apparently by pro-Russian separatists, has seriously frayed relations between the West and Russia, which have already been strained since the latter annexed Crimea. Meanwhile, fighting continues between the separatists and Ukrainian forces in Eastern Ukraine. The Europeans are threatening stronger sanctions against Russia, and escalating tensions are weighing on the euro.

07-25-2014, 10:56 AM
GBP/USD: Trading the British Preliminary GDP
British Preliminary Gross Domestic Product (GDP) is a key release and is published each quarter. GDP measures production and growth of the economy, and is considered by analysts as one the most important indicators of economic activity. A reading which is better than the market forecast is bullish for the pound.

Here are all the details, and 5 possible outcomes for GBP/USD.

Published on Friday at 8:30 GMT.

Indicator Background

British Preliminary GDP is a key economic indicator, and provides an excellent indication of the health and direction of the British economy. Traders should pay close attention to the GDP release, as an unexpected reading could affect the direction of GBP/USD.

GDP has been steady, with the indicator posting a healthy gain of 0.8% in Q1. This was just shy of the estimate of 0.9%. The estimate for Q2 is unchanged, at 0.8%? Will GDP follow suit with a strong reading?

Sentiments and levels

Despite slight losses last week, the pound remains at high levels. However, solid British inflation and employment numbers failed to push the pound higher. Traders should keep a close eye on British Retail Sales and GDP, both of which are market-movers. US numbers were a mix last week, but market sentiment remains high regarding the US economy, and talk of an interest rate hike will only intensify as QE should be wound up in October. So, the overall sentiment is neutral on GBP/USD towards this release.

Technical levels, from top to bottom: 1.7375, 1.7180, 1.7108, 1.6989, 1.6823, and 1.6684.

5 Scenarios

Within expectations: 0.6% to 1.0%. In such a scenario, GBP/USD is likely to rise within range, with a small chance of breaking higher.
Above expectations: 1.1% to 1.5%: An unexpected higher reading can push the pair above one resistance line.
Well above expectations: Above 1.5%: An surge in the reading would likely help the pound, and the pair could break a second line of resistance as a result.
Below expectations: 0.2% to 0.6%: In this scenario, GBP/USD could drop below one support level.
Well below expectations: Below 0.2%. A very weak reading could hurt the pound, and the pair could fall below a second level of support.

07-30-2014, 02:36 PM
EUR/USD July 30 – Euro Slips Below 1.34 Ahead of US GDP, Nonfarm Payrolls
EUR/USD continues to lose ground on Wednesday, as EUR/USD trades at the 1.34 line in the European session. On the release front, it’s a busy day, with a triplet of key events in the US - Advance GDP, ADP Nonfarm Payrolls and the Federal Reserve Policy Statement. In the Eurozone, Spanish GDP met expectations, posting a healthy 0.6% gain. However, Spanish CPI softened in June, with a 0.3% decline. Late in the day, Germany releases Preliminary CPI, a key indicator and market-mover.

EUR/USD Fundamentals

All Day - German Preliminary CPI. Estimate 0.2%.
7:00 Spanish Flash CPI. Estimate +0.2%, actual -0.3%.
7:00 Spanish Flash GDP. Estimate 0.5%, actual 0.6%.
Tentative – Italian 10-year Bond Auction.
12:15 US ADP Nonfarm Employment Change. Estimate 234K.
12:30 US Advance GDP. Estimate 3.1%.
12:30 US Advance GDP Price Index. Estimate 1.8%.
14:30 US Crude Oil Inventories. Estimate -0.5M.
18:00 US FOMC Policy Statement.
18:00 US Federal Funds Rate. <0.25%.

EUR/USD Sentiment

US consumer confidence soars: CB Consumer Confidence was outstanding on Tuesday, pointing to a sharp increase in June. The key indicator jumped to 90.9 points, crushing the estimate of 85.5 points. This was the indicator’s highest level since September 2007. Consumer confidence is closely tracked by analysts since a confident consumer is likely to increase consumption, which is critical for economic growth.
Markets eye US triplet: Investors have started the week on the sidelines, waiting for Wednesday’s triplet market-moving events. These include the FOMC policy statement, US GDP and ADP Non-Farm Payrolls. The forecast calls for an excellent GDP but soft NFP. German CPI will also be released on Wednesday, and the key index could have a major impact on the movement of EUR/USD.
Spanish data improves: Most Western countries wouldn’t brag about an unemployment rate around 25%, but the Spanish unemployment rate of 24.5% in Q2 was its lowest level in two years, and beat the estimate of 25.9%. There was more good news on Tuesday, as GDP posted a healthy gain of 0.6%, edging above the estimate of 0.5%. The Bank of Spain has raised its economic forecast for 2014 and 2015, acknowledging a stronger Spanish economy.
Geo-politics concerns continue: The tensions about the downing of MH17 are rising, as fighting continues in eastern Ukraine between pro-Russian separatists and Ukrainian forces. The EU is preparing to impose tough sanctions against Russia, which could be met with counter-sanctions and weigh on the EZ recovery. In the Middle East, the war in Gaza intensifies with more casualties on both sides as numerous ceasefires have been brokered and broken. Riots have also spread to the West Bank.
Mixed German data: Soft German data continues to worry the markets. The weak business confidence data from IFO contradicts the upbeat purchasing managers’ indices coming from the euro-zone’s powerhouse. On Tuesday, German Import Prices posted a gain of 0.2%, which was the best showing in 2014. On the inflation front, Germany has not been immune to Eurozone inflation woes, and we’ll get a look at German Preliminary CPI on Wednesday, with the markets anticipating a weak gain. In general, it seems that Germany cannot carry the euro-zone on its own, and a struggling German economy does not bode well for the shaky euro.

08-06-2014, 04:43 PM
EUR/USD Sentiment

US Services PMI jumps: On Tuesday, ISM Non-manufacturing PMI looked sharp, rising to 58.7 points last month. This easily beat the estimate of 56.6, and was the index’s best showing since February 2011. This follows a strong Manufacturing PMI reading last week, with the index climbing to 57.1 points, a three-year high. There was more positive news on Tuesday, as Factory Orders had an impressive July, gaining 1.1%. These solid numbers point to healthy expansion in the US manufacturing and services sectors, helping the US dollar post inroads against the euro.
German Factory Orders plunges: German manufacturing data was terrible on Wednesday, as Factory Orders fell by 3.2%. This was the strongest decline since October 2012. Despite concern about the health of the German economy, the euro-zone locomotive enjoys a strong job market that already triggers calls for wage hikes, even from the Bundesbank. Such a rise would push euro-zone core inflation higher.
Fear returns: While the situation in Portugal’s BES was quickly contained and poses no systemic risk, it goes to show that things can pop out of the blue and get out of control very quickly. This casts a doubt on how much the ECB’s stress tests can be reliable and prevent a crash.
Low inflation puts pressure on the ECB: Inflation in the euro-zone scratches the bottom, with 0.4% y/y in July. Core inflation is at 0.8%. Despite a weaker euro, prices are not rising in the euro-zone. Will Draghi respond to this? The wide measures introduced in June are still fresh, so action is unlikely, but Draghi could certainly try to talk down the euro to even lower levels.
US inflation levels remain subdued: Both the Fed favorite Core PCE Price Index as well as Average Hourly Earnings remained low, indicating the Americans don’t have too much money in the their pockets so raising rates to curb demand is not that urgent. The latest FOMC statement did acknowledge that inflation could be closer to target, but expressed concern about the “underutilized” job market.

08-14-2014, 10:48 AM
Pound Catches a Cold on Sluggish Wage Growth
Although geopolitical anxiety is still festering in the background, financial markets have focused their attention on fundamental economic drivers this morning, with a dearth of data to parse through as we hit the midway point of the week. The much anticipated second quarter GDP numbers for the Japanese economy were released overnight, and you could almost hear a collective sigh from Prime Minister Abe and the rest of his government when the figures came in just slightly better than economists had forecast. The modestly better than anticipated number was still an annualized contraction of 6.8% as the tax hike in April severed personal consumption which lead to private demand dropping by 5.0% over the quarter, though capital expenditures and external demand held up modestly better than forecast, helping the final GDP number narrowly miss the 7.1% decline that had been expected. The substantial drawdown for growth in the real economy over the second quarter has more or less been priced in given the tax hike, with attention now turning to how the economy recovers in the penultimate quarter to assess whether the BoJ may have to look at more accommodative monetary policy measures to combat a downturn in demand from lagging effects of the sales tax hike. Supportive comments from the economy minister and the narrow beat helped the Nikkei keep afloat, with the equity index posting a gain of 0.35% as USDJPY levitated off of the low-102s.

While a fairly significant contraction in the Japanese economy had been expected, what was unexpected was the dovish sounding Bank of England Governor across the pond, as Mr. Carney addressed the media to speak to the BoE’s quarterly inflation report. Although the head of the BoE did mention economic slack was estimated to be running at only 1% of overall GDP, the cut in the forecast of wage growth to increase by only 1.25% in 2014 (from the originally projected 2.5%), illustrated the current slack in the labour market would take longer to absorb than the central bank had anticipated. This assessment of stubbornly low wage growth comes on the heels of June’s employment numbers, which even with the jobless rate falling to 6.4%, still saw wage growth contract by 0.2% over the month. With Carney and the BoE telegraphing a more cautious approach to monetary policy than a few months ago, traders and investors has scaled back expectations that rate hikes are just around the corner, with the 10-year Gilt sliding to 2.46% and the GBPUSD cratering into low 1.67s after a 0.5% drop, the pair’s lowest level since early June.

As we head into the North American open, S&P futures have taken a bit of hit and are off the overnight highs seen earlier in the session after Retail Sales for the month of July for the American economy missed expectations and were flat over the month. When you strip out the more volatile items such as gas and autos there was a 0.1% increase over the month, in addition to June’s number being revised higher from 0.5% to 0.6%; yet the prior month’s revisions have done little to hide the disappointment in the headline number, with the big dollar catching an offer tone across the majors, helping the Pound and Yen claw back some of their earlier losses. As exposure to the USD is culled, the Loonie has seen some buying interest that has taken the pair back into the low-1.09s. The economic calendar for Loonie traders is sparse until Friday when Manufacturing Sales hit the wires, with a strong number giving bulls a chance to see if they can convincingly take back the 1.08s.

08-18-2014, 03:26 PM
3 Takeaways from Silver Wheaton’s Earnings Report

Silver Wheaton (SLW) recently released its second quarter earnings report. The company fell short of reaching its quarterly goals at its earnings per share reached 18 cents, while the market estimates (http://investing.businessweek.com/research/stocks/earnings/earnings.asp?ticker=SLW:CN) were at 20 cents a share. Moreover, the company’s attributed production, profit margins and net sales fell again. But this company could still reach its annual targets on account of expected increase in Sudbury mine. Let’s examine the recent quarterly results and provide three takeaways from them.

1. Attribution production fell but is expected to pick up

The company didn’t reach its quarterly goals in terms of attribution production and there were sharp falls in the 777 and Sudbury projects. Nonetheless, Vale (VALE) the mining company that operates Sudbury estimates a rise in this mine’s production in the coming quarters, which will more offset the drop in output in the past quarter.

In the past quarter, the attributed production in gold dropped by 13.8%, year over year. Its silver attributed output also slipped by 1.5%. The total output dropped by 2.9%.

Disclaimer:The author holds no positions in stocks mentioned and does not plan to initiate positions within 120 hours of the posting of this article. This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact.

08-20-2014, 05:28 PM
Canadian wholesale sales rise 0.6%, slightly better than expected
Canada’s wholesale sales rise 0.6% in June, slightly better than expected. In addition, the previous number was revised up to 2.3%. Canadian wholesale sales were expected to rise by 0.4% in June after 2.2% in May. While this is a relatively late figure, it usually has a lot of impact on the loonie.

USD/CAD traded around 1.0950 just before the publication. The better than expected number pushes Dollar/CAD lower, helping it gain some distance from the dreaded 1.10 line.– more coming

The Canadian dollar bowed before the strength of the US dollar. The latter has been rallying across the board. The gains that the C$ made towards after the corrected jobs data were erased.

The 1.10 level is critical for the pair. Upon breaking below the round number, the pair went further below and hasn’t breached this level for a long time.

09-03-2014, 06:26 PM
Market Movers Episode #13: September’s big market movers from the US, Europe and others, and one rule of thumb
In this episode, we preview the big events that are expected to rock markets in September: Non-Farm Payrolls, the Fed decision, the highly anticipated ECB drama and quite a few other releases that move currencies and commodities. The episode begins with a quick rule of thumb about money management that is always relevant.
Welcome to a new episode of Market Movers, presented by Lior Cohen of Trading NRG and Yohay Elam of Forex Crunch.You are welcome to listen, subscribe and provide feedback.
The topics:

Rule of thumb for money management: We start the episode with a catch phrase that everybody likes and break it down to one rule of thumb that is always relevant and for everybody.
Path of the US and the US dollar: We discuss what to look for in the jobs report (not only jobs), what related figures could also have a strong impact and what to expect from the FOMC, in the last press conference around a taper decision.
What will the ECB do and how will it impact the euro?: After the Jackson Hole drama from Draghi, will the ECB announce QE now? Later? How will the euro react? We discuss the implications.
Direction of the BOE: After the pound more than reversed its recent gains, we talk about what events to look out for and what to ignore in September.
Other currencies: It’s a busy month also in other places: we explain why dramas could come from Canada and Australia and which central banks are under pressure.

10-08-2014, 11:43 AM
EUR/USD Fundamentals

18:00 FOMC Meeting Minutes

* All times are GMT.

For more events and lines, see the Euro to dollar forecast.

EUR/USD Sentiment

Dollar sell-off: After the strong NFP (see below) came the hangover. In an orderly fashion, the dollar was sold off and EUR/USD rose gradually, even temporarily breaking above 1.2660. However, as the chart shows, this has resulted in a higher low.

German weakness: Both German factory orders and industrial output fell sharply in August. While there is some seasonality here, this “hard data” contrary to the “soft data” coming from PMIs, is certainly worrying.

FOMC minutes anticipated: The minutes from the latest meeting might be more hawkish than the message we hear from Chair Yellen, given previous releases. This is the big event of the week, due on Wednesday. JOLTS is also closely followed by the Fed and it certainly surprised to the upside

10-14-2014, 02:38 AM
EUR/USD forecasts cut by Goldman Sachs

Fears of German recession are not the only reason behind lower forecasts for EUR/USD.

The team at Goldman Sachs lists several reasons why euro/dollar should further fall and update their 3, 6 and 12 month forecasts to the downside.

Goldman Sachs cuts its EUR/USD forecast and now expects the pair to trade at 1.23, 1.20 and 1.15, in 3, 6 and 12 months from 1.29, 1.25 and 1.20 previously. GS expects EUR/USD to fall to parity by the end of 2017.

“Overall, we think current levels in EUR/$ do not yet reflect the kind of balance sheet expansion that ECB President Draghi has mentioned. As the market becomes more comfortable that the ECB will bring its balance sheet back to early-2012 levels, we think we will see more Euro weakness,”

“In addition, our European Economists see downside risks to the ECB’s inflation and growth forecasts, which points to the potential for more easing beyond the measures that have already been announced,”

“We think a large portion of foreign portfolio inflows into the Euro area since Mr. Draghi’s “whatever it takes” speech is likely to be unhedged. This means that the underlying long Euro position is likely to be sizeable, which is ignored by simple positioning metrics like the CFTC’s CoT report,”

http://pcm-fx.com/pcmupload/uploads/1413239709891.png (http://pcm-fx.com/pcmupload/)

“The price action around last week’s US non-farm payrolls (NFP) also tends to support this view. Exhibit 10 shows the reaction of G10 currencies versus the Dollar in the 30 minutes around last week’s positive surprise on payrolls (the positive bars show how much the Dollar appreciated against each currency in the 30 minutes after the payrolls release). There is no sign that the Dollar lagged in its rise against the Euro, which we would see as a sign that short Euro positioning is stretched,”

“As a result, Euro downside remains our top conviction view,”

10-15-2014, 05:16 PM
2 Reasons To Stay Long Sterling – Deutsche Bank
On one hand, UK unemployment fell in August, but the drop in jobless claims was disappointing. This is only part of the complex picture for GBP. And what’s the next direction?

Deutsche Bank gives two reasons to stay long on sterling:

In a note to clients today, Deutsche Bank outlines a couple of development for sterling advising of staying long GBP despite its recent decline.

First, while yesterday’s CPI number was weak UK inflation dynamics are very different from the US or Europe. Medium term expectations are stable, services inflation is well supported and lower CPI may actually be beneficial for UK growth in supporting consumption. Headline inflation also matters less for the Bank of England than other central banks.

http://pcm-fx.com/pcmupload/uploads/1413378996171.png (http://pcm-fx.com/pcmupload/)

Second, positioning has moderated yet further. The IMM report shows that the real money community is now the shortest pounds for two years, while hedge funds have continued to cut longs.

10-27-2014, 08:33 PM
Major Currencies Positioning & Forecasts – BNP Paribas
Where are currencies headed next? Where will they be in one month and where will currency pairs trade in three months?

Stability isn’t on the cards for quite a few pairs.

Here is their view, courtesy of eFXnews:

The following are BNP Paribas’ latest forecasts (end of period) for major currencies along with its estimates for their current positioning.

http://pcm-fx.com/pcmupload/uploads/1414427611131.png (http://pcm-fx.com/pcmupload/)

http://pcm-fx.com/pcmupload/uploads/1414427611252.png (http://pcm-fx.com/pcmupload/)

11-27-2014, 04:07 PM
What To Buy & What To Sell Now?: FX Trades From Momentum Model - BNZ
The following are the latest signals and trades generated and entered by Bank of New Zealand's (BNZ) Momentum FX Model.
http://pcm-fx.com/pcmupload/uploads/1417089964851.png (http://pcm-fx.com/pcmupload/)

BNZ's highlights on the model's positions are as follow:
Remaining short JPY remains lucrative, and AUD now spurned
– Our model continues to make hay on its short JPY positions, having hauled in more than 7% against the USD and NZD respectively.
– However, the short JPY position against the AUD has been stopped out, with the AUD unloved throughout. The model is now short AUD against the USD and NZD.
– The model is far less convinced on the USD, with only four of eight possible USD trades now set to ‘long’, while the other four are set to ‘neutral’.
The model supports NZD on the crosses
– The model is long NZD against nearly all of its TWI partner currencies (EUR, JPY, AUD, GBP). The last two have been entered since our last update, and simply reflect weakness in those currencies.
– The model has been stopped out of its short NZD/USD position, and is closer to entering a long position than a fresh short.

11-27-2014, 04:11 PM
Trading FX Seasonality: High Stakes Into Year-End - Credit Suisse
EUR and European currencies have historically performed well in December, although without any stunning hit ratios. On the other hand, JPY is usually weak towards year-end, notes Credit Suisse.
Such patterns, according to CS, point to very high stakes for EUR/USD and USD/JPY into year-end.
"In December liquidity seasonally tightens, positioning tends to be squared and the euro area current account surplus is also seasonally strong. But Draghi’s well-timed statements now signal imminent ECB easing (our economists expect to see a framework for sovereign QE outlined at the 4 December ECB meeting)," CS clarifies.
"The stakes are therefore even higher than normal heading into the ECB meeting. This makes the euro area flash inflation estimate on 28 November a key data release for the market, in our view," CS argues.

http://pcm-fx.com/pcmupload/uploads/1417090240021.png (http://pcm-fx.com/pcmupload/)

How to position?
"Given that we expect the ECB to announce new QE, we stick to our longstanding short EUR view going into December. However, if Draghi disappoints, EUR shorts could become a 'painful' position. And while we ultimately would use EURUSD upside to establish new shorts, we would be cautious in the interim in such a scenario," CS advises.
"Meanwhile, short JPY positions, at least on this measure, could have an easier ride through the end of the year," CS projects.

12-01-2014, 07:29 PM
Getting Impatient With Our Long EUR/USD - Credit Agricole
Having been long EUR/USD since 6 October we have become impatient with our position. While admittedly we were blindsided by the surprise BoJ QQE decision, the ECB Governing Council’s conspicuous shift towards sovereign QE has delivered a more sustained blow.
On this later blow, it is difficult to see the market’s ECB view – irrespective of perceived legal hurdles – changing before year-end suggesting ECB policy pressure upon EUR should persist.
Any EUR/USD capitulation will thus need to be USD-led, but so far FOMC members have remained largely silent on the resurgent USD.
Indeed we doubt next week’s nonfarm payrolls release can provide the necessary capitulation trigger with our new FX Execution Mapper predicting a somewhat muted EUR/USD rally (ie, 25pips) on a negative surprise.

Thus with the USD’s carry trend looking strong it appears unlikely positioning alone can drive a meaningful USD-correction into year-end.

We stay long EUR/USD (stop unchanged at 1.2350) by conceding the evidence weighed against us.

12-08-2014, 05:30 PM
EUR Selling Momentum Intact But Slow Into Tear-End - Credit Agricole
Despite still extended short positioning, widening interest rate spreads should continue to exert downward pressure upon EUR in the week ahead.
This driver was again evident this week following the ECB policy meeting where initial disappointment following the ECB press conference quickly fading been replaced with renewed EUR selling. Justification for such selling was corroborated by the EMU-US 3x6FRA spread which has moved over 0.1% against EUR/USD in the past week.
Hence with market expectations keenly focused upon the possibility of sovereign QE by the ECB, such selling appears unlikely to be easily distracted as we move into year-end. Indeed the ECB sovereign-QE threat, plays in favour of policy makers buying them further time to see if current policy measures are gaining necessary traction.
As such EUR/USD should depreciate further into year-end on pure ECB-policy before the Fed profile is even considered.

http://pcm-fx.com/pcmupload/uploads/1418045421461.png (http://pcm-fx.com/pcmupload/)

12-08-2014, 05:31 PM
GBP Outlook & Forecast: Charting A Middle Path - SocGen
Focus of the day:
"The UK growth profile is expected to moderate, and inflation should stay subdued. There has been a sharp retreat in market expectations of UK interest rates, with a full 25bp rate hike by the BOE only priced in for end-2015 currently. The significant net long position in sterling in mid-2014 has also been fully eliminated. There is thus scope for upside economic surprises to benefit sterling, especially if the disinflation trend stops.
There are however growing political uncertainties in the UK with the May general elections just ahead....

http://pcm-fx.com/pcmupload/uploads/1418045421592.png (http://pcm-fx.com/pcmupload/)

We therefore expect sterling to weaken in a middle path between the dollar and the euro. The rising dollar trend in combination with the various negative factors weighing on sterling will maintain the downward pressure on cable. Sterling should nonetheless outperform the euro as the ECB eases monetary policy further in 2015. We consequently see EUR/GBP sliding moderately lower over the next several months."

12-22-2014, 11:56 AM
Forecasts For EUR/USD, USD/JPY, AUD/USD, NZD/USD, AUD/NZD - Westpachttp://pcm-fx.com/pcmupload/uploads/1419234968081.png (http://pcm-fx.com/pcmupload/)

01-05-2015, 06:59 PM
Doom and gloom for the Australian economy

The Australian dollar has had a horror start to the year falling to its lowest level in in over 5 years with no bottom in sight as weak iron ore prices, a resurgent US economy and a slowdown in China take its toll on the currency and the overall economy.

In early trade on Monday the Australian dollar fell as low as US80.35 cents, its lowest level since July 2009
The price of iron ore, Australia’s biggest export fell by nearly 50% in 2014 making it one of the world’s worst performing commodities and pressuring the overall Australian economy as the country is so dependent on this vital export.

A major reason for the decline in price has been a jump in production from Australia and other countries which have flooded the market at a time where demand is falling worldwide, which includes China the biggest buyer off the metal.

The Chinese real estate market is cooling off with not a lot of new construction on the horizon. The sector accounts for a huge proportion of Iron ore which is imported into the country from Australia.

The key to the Iron ore price in 2015 is the way China deals with the slowdown in the property market said Stan Shamu, a Melbourne-based strategist at brokerage IG

“The wildcard for the commodity’s outlook this year would be the way Beijing handled slowing growth ,with any stimulus or support for the country’s weak property market critical for a recovery in iron ore prices”.
“For now, China has a lot of supply and a lot of choice as to where they buy from and what quality they buy,” Mr Shamu said.
“I think it’ll be a while yet before we see any real game changer for iron ore.”
The US economy ended the year on a high note with improving economic conditions such as the real estate market and the unemployment rate which is at its lowest level since 2008.
Most Analysts are now predicting the US Federal Reserve will lift Interest rates this year with some saying the first move could come as early as April.
US interest rates have been on hold at record lows of 0.25% since 2008 as the FED tried to kick start the US economy after the world financial crisis.
“This is just another blow for the Australian dollar which is one in a line of many things” noted Analysts from Fibogroup forex brokers.
“With the US stock market at record highs, unemployment falling and tumbling oil prices, which will put more money into the pocket of the American consumer the FED’s hands are tied and they have no option but to move on rates”.
“We believe this will put the Australian dollar under further pressure as we enter the New Year”.
The Chinese economy has had a stellar run for the past decade but cracks are appearing which does not sit well with the Australian economy as China is Australia’s largest trading partner.
China’s manufacturing sector saw a significant decline last year which filtered through to the job market, with the unemployment rate rising, particularly in the housing market which has been a key driver of the local economy.
The Chinese government has now predicted growth to be less than 7% this year after predicting a number of 7.5% last year with further downgrades possible as we move into 2015.
In light of the disappointing figures, the Chinese government is trying to address the problem with measures such as a reduction in Interest rates to encourage banks to lend out more money and reducing red tape to allow companies to begin new projects.
These measures will be monitored closely from Australia as any Improvement can only be good for the local economy.

01-13-2015, 02:07 PM
What Is Keeping Gold Up?

SPDR Gold Trust (GLD) started off 2015 with a 3% gain, which basically erased the losses incurred in the last three week of 2014. The recent recovery in the price of gold was partly related to the depreciation of the U.S. dollar and the ongoing drop in U.S. long term treasuries. Finally, the minutes of the last FOMC meeting and non-farm payroll report didn’t seem to have much of an impact on the price of GLD, but they still provide some guidance about where GLD could be heading in the coming months.

The recent non-farm payroll report was positive and showed another strong gain of 252,000 jobs during last month – very close to market expectations. Since the report was very close to market estimates, it didn’t seem to move GLD.

Conversely, the ongoing fall in U.S. long term treasuries yields, as indicated in the chart below, may have related to the progress of GLD.

During January (up to date) the yield of 10 year treasury bonds dropped by 0.19 percentage points. As I have pointed out in the past, a fall in long term treasuries tends to bring back up the price of GLD. Over the past few months, the linear correlation between the two data sets was -0.328.

02-16-2015, 11:34 PM
update: 17 Feb 2015

UK inflation data: Tuesday, 9:30. The UK inflation rate declined sharply to 0.5% in December, from 1.0% in the previous month, reaching its lowest rate since May 2000. This decline was prompted by lower fuel prices. Analysts expected inflation to reach 0.7%. Bank of England governor Mark Carney still expects rate hikes in the next two years despite the sluggish inflation. Economists predict the ongoing inflation decline will continue while households are expected to benefit from these super low rates. UK CPI is expected to rise 0.3% this time.

02-17-2015, 03:40 AM
Update: 17 Feb 2015

UK inflation data: Tuesday, 9:30. The UK inflation rate declined sharply to 0.5% in December, from 1.0% in the previous month, reaching its lowest rate since May 2000. This decline was prompted by lower fuel prices. Analysts expected inflation to reach 0.7%. Bank of England governor Mark Carney still expects rate hikes in the next two years despite the sluggish inflation. Economists predict the ongoing inflation decline will continue while households are expected to benefit from these super low rates. UK CPI is expected to rise 0.3% this time.
German ZEW Economic Sentiment: Tuesday, 10:00. German analyst and investor climate edged up in January amid low oil prices. Sentiment rose to 48.4 in January from 34.9 in December, reaching the highest level since February last 2014. The strong release beat forecast for a 40.1 reading. Economists warned that if the Greek situation deteriorates it will influence the German economy. German analyst and investor climate is expected to jump to 56.2.

02-25-2015, 04:36 PM
3 reasons why EUR/USD cannot really recover

EUR/USD moved up and even peeked above resistance, but with the peek came the peak and the pair turns down. It sticks to the same old range, trading below the close on Friday and is unable to break higher.
Yellen was quite cautious and the Greek crisis has been sidelined for now. So why can’t EUR/USD break higher out of range? Here are 3 answers.

1) What Yellen said
The initial reaction was a jump in the dollar, on the sense that a rate hike is imminent, and the next move was down, on a better understanding of what she said: a removal of forward guidance does not imply an immediate rate hike.
The dollar was weaker across the board and the euro gained against it as well. But what did she actually say? In general, everything is data dependent and she also expressed caution on jobs and inflation. Yellen was basically being Yellen – dovish as we have always known her.
But perhaps there is another explanation: perhaps she was preparing us for a removal of forward guidance in March: no more patience next month, and a potential for a rate hike – perhaps not imminently in April, but June is still on the agenda.
June was the earliest possible date anyway, so perhaps her words are not so dovish?
We will get a better notion with the upcoming jobs report next Friday. If it’s another great one, June is certainly on the agenda. If not, it’s September, which is not that far away.

2) Greece: Next crisis is not too far away
The Eurogroup approved the Greek list of reforms. That was excellent news for the Athens stock market. But now, it’s time for action and not only talk.
How much money has left Greek banks so far? Will SYRIZA hold together after the concessions? Will they ramp up tax collections? And basically, this is a four month extension, and this means that the next round is not that far off.

3) The Draghi Drag
ECB president Mario Draghi speaks later today, 16:30 GMT, in the European parliament and this is a great reminder of the stance of the central bank: they are about to launch a massive QE program.
And why? Inflation remains low and it’s not only oil prices. Core inflation remains low, and so does demand. Germany just had a 5 year auction that was negative: that means that investors lined up to pay the German government to take their money for five years.
This is a reflection of the upcoming QE but also of deflation. Wait, does it really matter? US bonds yields, even after Yellen, remain much more attractive than most European ones.
All in all, EUR/USD has only momentary reasons to rise, but the general direction remains down.

03-10-2015, 05:58 PM
Dollar Rally Resurgence

After yesterday’s consolidation, the underlying upward trend in the greenback has reasserted itself, with the DXY surging to a fresh 12-year high and weighing on overall risk appetite in financial markets. Though the extension of last Friday’s post NFP gains in the DXY have lacked a fresh catalyst, FOMC members on the speaking circuit have been reinforcing the notion a June rate hike is in the pull position when discussing interest rate liftoff, with Dallas Fed President Fisher warning waiting too long to raise rates may force more aggressive policy action further down the road.

The ECB’s Public Sector Purchasing Program (PSPP) continues to put downward pressure on bond yields, which in turn is reinforcing the bid tone driving the greenback higher against the euro, but also against the other majors. Yields on the German 10-year bund have slipped further to 0.27%, with the 7-year turning negative and treading precariously close to the ECB’s deposit rate. The movements in yields have sparked some worries the Bundesbank may struggle to meet its buying quotas under the program, given the availability of assets to purchase with yields above the ECB deposit rate. As investors gobble up European debt that is eligible for purchase under the PSPP scheme, market participants are at the same time hedging the currency risk inherent in their investment decision, putting continued downward pressure on EURUSD, as the pair slides into the mid-1.07s touching its lowest level since September of 2003.

Asian bourses struggled under the weight of the greenback during their overnight session, with the Nikkei unable to take advantage of the highest level in USDJPY since July 2007 as the pair briefly made a test of 122 before being rebuked into the mid-121s. The Nikkei finished its session off by 0.67%, while the Shanghai Comp fell by 0.46% after Chinese CPI data for February came in hotter than anticipated for the month of February. The 1.4% rise in consumer prices compared to twelve months ago bested the median analyst estimate that called for a gain of 0.9%, and is up from the 0.8% that was registered in January. While the initial print dented risk appetite on the theory that resurgence in Chinese inflation would constrain policymakers’ abilities to tactically protect the economy’s growth objectives, we will have to wait for March’s figures in order to determine how large the distortions from the Lunar New Year were.

As we get prepared for the North American open, the bears have full control over the equity futures’ tape as the surging USD is prompting market participants to pare back risk appetite. The overall dollar-bullishness has done little to support commodity prices, with comments from the Kuwaiti OPEC governor expecting the organization to extend current policy at the next meeting on June 5thadding fuel to the fire, pushing front-month WTI back below the $50 level. Sagging commodity prices and a generally USD-supportive investment climate has weighed on the loonie this morning, with price action reinforcing the upward break of the technical pennant formation which formed in the consolidative phase of USDCAD from mid-January onward. While US retail sales and Canadian employment figures later this week will be the main economic catalysts that could sway price action for the USDCAD pair, we would caution that in absence of data challenging the status quo which reinforces the narrative of monetary policy divergence between the Fed and Bank of Canada, the technical price action suggests there is likely more pain to come for the loonie.

03-16-2015, 10:16 PM
‘Patient’ Fed in Focus
As the new trading week kicks off, price action across various asset classes suggests financial markets are tucking in for the highly anticipated conclusion of the FOMC’s two day policy meeting on Wednesday. The subdued overnight session has allowed participants to book profits on the greenback prior to the Fed’s policy statement and Yellen’s subsequent press conference on Wednesday, with the DXY ebbing back below the 100 level, boosting EURUSD back to the north side of 1.05. Hydrocarbons are also appreciative of the bout of profit taking in the USD, with the weakness in the greenback helping pull both WTI and Brent off overnight lows that have not been seen since March of 2009, after worries the supply glut could worsen drove the front-month WTI contract into the mid-$43s overnight. US equity futures have been given a lift as the big dollar consolidates ahead of the opening bell in North America, looking to claw back some of Friday’s losses after a strong close in China helped boost risk appetite.

The overnight Asian session was a mixed bag, with the Nikkei unable to make any headway as a stronger yen stifled any positive momentum and held the equity index to essentially an unchanged print. The big winner during the Asian session was the Shanghai Comp, which managed to post a gain of 2.24% to begin the new trading week, as investor’s added growth-correlated assets to their portfolios after Premier Li pledged to prop up the economy if growth was at risk of breaching the lower limit. The comments from the Premier have helped ease participants concerns that a sluggish start to Q1 is already threatening the government’s 7.0% growth objective for 2015, though given the inconsistencies of reporting around the Lunar New Year would suggest waiting for the March data set to better suggest if further stimulus measures are necessary.

The loonie and its commodity-linked brethren are benefiting from the consolidative price action in the greenback, despite front-month WTI remaining soft below $45/barrel. USDCAD has edged away from the strong psychological resistance at the 1.28 handle, with loonie traders on hold after deciphering the mixed jobs data from Friday and waiting to see if the Fed amends their forward guidance on Wednesday. Even though the employment situation in Canada was modestly better than expected given the amount of full-time jobs added, the magnitude of losses in the natural resource sector over the last two months suggests continued softness across national averages in the first half of the year and doesn’t provide a particularly bright outlook moving forward; combined with the very real possibility forward guidance from the Fed is altered to increase the probability of an interest lift-off at the June meeting, the 1.28 level may have a hard time corralling the USDCAD pair in the short-term.

04-03-2015, 02:07 PM
EUR/USD: Trading the US Nonfarm Employment Change
US Nonfarm Employment Change measures the change in the number of newly employed people in the US, excluding workers in the farming industry. A reading which is higher than the market forecast is bullish for the dollar. Here are the details and 5 possible outcomes for EUR/USD.

Published on Friday at 13:30 GMT.
Indicator Background
Job creation is one of the most important leading indicators of overall economic activity. The release of US Non-Farm Employment Change is highly anticipated by the markets, and an unexpected reading can have a substantial impact on the direction of EUR/USD.
Nonfarm Employment Change improved sharply in February, jumping to 295 thousand. This crushed the estimate of 240 thousand. The markets are expecting a sharp drop in the March report, with an estimate of 247 thousand. Will the indicator repeat and beat the forecast?
Sentiment and Levels
EUR/USD has found its footing recently, but there is more room for the pair to drop. However, we’re unlikely to see any dramatic moves until after the Easter holiday. The ongoing Greece bailout crisis could have a major impact on the pair, and a pause in the crisis could help EUR/USD in the short term. In general, ECB QE continues in full force and continues to weigh on the euro. Over in the US, it seems that the losing streak of poor data may be over as we have already seen the first signs of this. So, the overall sentiment is neutral on EUR/USD towards this release.
Technical levels, from top to bottom: 1.1113, 1.1050, 1.0910, 1.0760, 1.0615 and 1.0550.
5 Scenarios

Within expectations: 244K to 250K. In such a scenario, the EUR/USD is likely to rise within range, with a small chance of breaking higher.
Above expectations: 251K to 255K: An unexpected higher reading could push the pair below one support line.
Well above expectations: Above 255K: The chances of such a scenario are low. Such an outcome could push the pair lower and two or more support lines could fall as a result.
Below expectations: 239K to 243K: A weaker reading than forecast could result in EUR/USD breaking above one resistance line.
Well below expectations: Below 239K. In this scenario, the pair could break through two or more resistance lines.

05-07-2015, 10:36 PM
4 Reasons The USD Will Rebound – Keep The Faith – BNPP
The past week has not been a good week for USD bulls, and more specifically EUR/USD bears.

Is all lost? The team at BNP Paribas gives 4 reasons to keep the faith:

“Against expectations, the FOMC announcement this week was less of a marketmoving event than the earlier release of the very weak US Q1 GDP data.

The resulting USD weakness has taken us out of our short EURUSD spot recommendation from 25 March.We do not think the current USD weakness represents the start of a new trend, and restate our bullish USD view over the coming months for the following key reasons:

1- Unchanged Fed tightening expectations – the FOMC statement does not change our economists’ view for Fed tightening in September.

2- US growth will rebound in Q2 – the factors suppressing Q1 GDP are likely to prove temporary.

3- US front-end yields will rise – if data improve in line with our expectations, US 2-year yields will rise. The USD yield advantage will widen again.

4- FX positioning is not crowded – USD long exposure has this week fallen to its lowest level for 2015 at +13 (on our scale of -50 to +50). If the above three points prove correct, there is considerable potential for a rebound.”

http://pcm-fx.com/pcmupload/uploads/1431023699831.png (http://pcm-fx.com/pcmupload/)

05-11-2015, 01:26 PM
EUR/USD: Close To A Turning Point; Sell In May - Credit Agricole
Since hitting a multi -week low at 1.0521 in April, the EUR has been rebounding. It appears that most of the past few weeks’ upside can be traced back to delayed Fed rate -hike expectations. Elsewhere, an improving Eurozone outlook has seemingly fuelled fears about the ECB turning less aggressive on QE and has led to the unwinding of EUR -funded carry trades. It also appears that investors expect Greece and its creditors ultimately to agree on a deal , and avoid a ‘Grexit’.

http://pcm-fx.com/pcmupload/uploads/1431336332931.png (http://pcm-fx.com/pcmupload/)

That said, we doubt that the fundamental outlook for EUR/USD has changed materially in recent weeks. We view the latest rally as a positioning correction more than anything else. Fed –ECB policy divergence remains in place.
We think that markets are too complacent with regard to Greece. In particular: - We doubt that the ECB would agree to extend ELA further if Greece were to miss its upcoming payments to the IMF and especially the ECB itself. The Governing Council determines the amount of ELA on a weekly basis as well as the collateral haircut applied. In effect, Greek banks' and the government's ECB funding could slow to a trickle if Athens fails to meet its financial obligations.
--In addition, even if Athens continues to treat arrears as 'soft' claims, it will need external assistance for the payment of EUR6.8bn bonds held by the ECB due in July and August. The Eurogroup meeting on 19 June seems to be the real 'hard deadline' for Greek officials and we suspect that their brinkmanship could come to the fore in the run-up to the meeting. We cannot rule out a referendum on the proposed reforms and further political uncertainty in the troubled Eurozone member.
---Last but not least, we worry that markets are ignoring the fact that Greece will need ever more funding for the coming years. Underwhelming tax revenues have already pushed the government's primary surplus well below the target set under the second bailout agreement. In turn, this suggests that the Greek debt-sustainability issue will resurface soon and call for debt forgiveness/restructuring as well as additional fiscal austerity measures. Needless to say, such an agreement may not be possible with the current Syriza government. Indeed, we cannot rule out the risk of snap elections in Greece in the coming months. Our concerns are further underscored by the growing reluctance of creditors to soften their stance towards Greece. The scope for compromise may diminish even further given that Euro-sceptic parties like the True Finns seem poised to join the new Finnish government.
We think that, while the squeeze may continue for now, EUR/USD levels around 1.1500 could offer interesting selling opportunities.

05-15-2015, 04:28 PM
EUR/USD: Trading the UoM Consumer Sentiment Index
The University of Michigan Consumer Sentiment Index surveys consumer attitudes and expectations about the US economy. An increase in consumer confidence is a positive sign about the health of the economy and is bullish for the US dollar.

The UoM Consumer Sentiment Index, which is released monthly, is an important leading economic indicator. It helps measure future spending behavior, and provides an indication of consumer confidence in the economy. Analysts look to the index to help answer that all-important question of “is the US consumer optimistic or pessimistic about the economy”?

The index improved sharply in April, climbing to 95.9 points. This beat the estimate of 93.8 points. The markets are expecting the upward trend to continue, with the estimate standing at 96.5 points. Will the indicator match or beat this prediction?

Sentiments and levels

EUR/USD enjoyed a run on the euro short-squeeze and broad US dollar weakness. Expectations appear to have been overly optimistic for euro-zone growth in Q1, so a disappointment cannot be ruled out and the ECB’s QE program’s necessity will probably be reaffirmed. In the US, the sentiment that Q2 will outperform a dismal Q1 continues to gain ground. Continuing monetary policy divergence could be better reflected in the pair, and this would mean lower levels for the euro. So, the overall sentiment is bearish on EUR/USD towards this release.

5 Scenarios

Within expectations: 93.0 to 100.0: In such a case, EUR/USD is likely to rise within range, with a small chance of breaking higher.
Above expectations: 100.1 to 104.0: A reading above the 100-point level could send the pair below one support level.
Well above expectations: Above 104.0: The chances of such a scenario are low. Two or more support lines could fall on such an outcome.
Below expectations: 89.0 to 92.9: A poor reading could push the pair upwards, and one resistance level could be broken.
Well below expectations: Below 89.0: A sharp drop in consumer confidence would likely hurt the dollar, and EUR/USD could break above two or more resistance levels.

05-18-2015, 02:52 PM
Quiet trading day
The car crash that represents FX developments in Q2 looks set to continue, with price action in EURUSD the most pertinent representation of how the price action in FX over recent weeks has defied the conventional wisdom. Friday saw a fairly substantial squeeze higher of over 1 big figure to make a new high of 1.1467 and we start the European session not that far below. The fact that bond yields have come down from the recent highs last week also underlines the extent to which the euro move looks like a short-squeeze, as those who have bet on a weaker single currency on the back of divergent monetary policy between the Eurozone and the US have been forced to throw in the towel. Furthermore, even though Greece is in the ‘endgame’ (according to ECB member Mersch over the weekend), this is also not impacting the euro, but that should not surprise given the history of Greece and ‘endgames’. Latest developments suggest that it was very close to defaulting on its IMF repayment last week and that the coffers really are starting to look very bare. The latest talk is of giving Greece a ‘take it or leave it’ ultimatum.

The data calendar suggests today should be fairly light in terms of risk events. Looking ahead, it’s the inflation data in the UK that grabs the attention for tomorrow. Sterling has performed strongly in the wake of the election, even though the Bank of England downgraded its growth forecast last week. Final inflation data is also seen in the Eurozone tomorrow, together with US numbers on Friday. The RBA will also release minutes to its latest meeting where it cut rates to 2% and suggest rates are likely to remain on hold for some time.

05-25-2015, 04:56 PM
USD/JPY: At The Top Of Its 2-Month Range; What's Next?
Despite last week's USD-driven push towards the top of its two-month range at 122.0, USD/JPY should remain contained in the week ahead.

Helping constrain further USD/JPY strength in the near term, the BoJ appears likely to tinker with its assessment of the Japanese economy putting a more positive spin on the economic outlook in its monthly report release next week. Indeed, with this week's Q1 GDP release surprising to the top side, even a subtle shift in the BoJ's assessment could prevent further USD/JPY gains.

Equally, however, the 30 April minutes will maintain their note of caution and leave open the door to further stimulus if required – such was the view already expressed by both Governor Haruhiko Kuroda and Deputy Governor Kikuo Iwata in recent speeches.

Supporting this note of caution, April retail sales should moderate further, confirming the Japanese consumer still lacks confidence. Moreover, both the national and Tokyo CPI prints are unlikely to deliver what BoJ policymakers are hoping for – ie, a convincing trajectory back to 2.0%YoY inflation.

As such, we maintain our view that USD/JPY will rise further this year, just not in the week ahead if forecast revisions are delivered as expected.

http://pcm-fx.com/pcmupload/uploads/1432558530952.png (http://pcm-fx.com/pcmupload/)

06-08-2015, 07:39 PM
How To Trade EUR/USD, USD/JPY This Week? - Nordea
What we need to seethis week is whether or not the great US jobs report translates into better consumption – the US retail sales is this week’s key number.

The biggest risk for the EURUSD is not just ok, but MUCH stronger numbers which would make the UST curve flatten instead, implying a more aggressive Fed.

Having reverted back below 1.1250, my target last week, the EURUSD may test support at around 1.1080, below which we may see the 1.0840-1.0964 area again. As long as above the latter, I prefer to be short term (weeks/month) bullish... but, God knows how strong the US retail sales will be. That said, if you look at the very recent history, such shocks to Fed funds futures rates have had transitory impact on the EURUSD - the trend has overall been shared! So what works for intraday doesn't work for weeks/months.

http://pcm-fx.com/pcmupload/uploads/1433777835341.png (http://pcm-fx.com/pcmupload/)

The USDJPY did jump above 125 again on the US Treasury yield shooting up last Friday, unlike expected. But with the strong wage data we got last week from Japan, and the recent commentary from the BoJ... I am still not keen on selling the JPY here. But that's just me.

06-08-2015, 07:45 PM
USD Faces Further Upside Risk; EUR Rallies Remain A Sell - Credit Agricole
Risk sentiment has been unstable of late, mainly on the back of rising Fed rate expectations. Friday’s stronger than expected US labour data should reinforce the view that the Fed is considering higher rates in September. While such prospects should keep the USD in demand, they should come to the detriment of liquidity expectations and investors’ appetite for risk assets too. Nevertheless, from a broader angle further improving global growth expectations should compensate for falling liquidity expectations.

Elsewhere, we remain of the view that the EUR should be sold on rallies. While Greece-related uncertainty is likely to keep demand for EUR-denominated assets muted, the ECB made clear that QE will run its course regardless of improving growth and price developments.

This suggests that there is additional room of diverging Fed-ECB monetary policy expectations to the detriment of EUR/USD.

Ahead today it will be quiet in terms of market moving data releases. If anything the main focus will be on speeches by ECB members and ongoing developments as related to Greece.

06-15-2015, 06:05 PM
The Case For Staying Short EUR/USD Into FOMC - Barclays
In its weekly FX note to clients today, Barclays Capital advises clients to stay short EUR/USD going into this week's FOMC meeting.

The following is Barclays' rationale behind this argument along with the details of its current short EUR/USD position.

USD into FOMC:

"Markets will pay close attention to the tone of the FOMC statement on Wednesday and watch for hints on the timing of the first rate hike. Given the recent pickup in US consumption and labor market data, we think the Fed is likely to maintain its view that the winter slowdown was transitory and that the economy is likely to expand at a moderate pace. Indeed, the pace of job growth has picked up, with payrolls rising 280K in May, and the Fed’s LMCI has increased since the April meeting.

Additionally, we expect the Fed to reiterate that inflation will gradually rise toward the 2% target in the medium term as the labor market continues to improve and inflation expectations remain stable," Barclays clarifires.

"Indeed, CPI data on Thursday, along with the latest import price data, should support our view that downward pressures on domestic core inflation from the lagged effects of USD appreciation will begin to wane going into the third quarter. As such, we continue to think the Fed is on track to hike twice this year (at the September and December meetings)," Barclays projects.

"Overall, we believe that the FOMC statements, along with CPI and other macro data, should support the USD," Barclays argues.

EUR amid Greek Uncertainty:

"Greek political uncertainty remains high, as the gap in negotiations between Greece and the Institutions remains substantial. The IMF is reported to have walked away from talks with Greek officials on Thursday because of the inability to find agreement on such issues as pension and tax reforms. Meanwhile, the economic and financial situation is continuing to deteriorate in Greece, with the state revenue shortfall having grown €1bn in May to reach a total of €2bn, and with the ECB having last week raised the limit on the Emergency Liquidity Assistance (ELA) to Greek banks by a further €2.3bn, to €83bn. The Eurogroup and ECOFIN meetings will be held on 18 and 19 June, respectively," Barclays notes.

http://pcm-fx.com/pcmupload/uploads/1434377068851.png (http://pcm-fx.com/pcmupload/)

We think a failure to find agreement will make it difficult to have a smooth resolution before the end of June, when the programme expires. Another extension of the programme is possible, although not straightforward as it would require the approval of some national parliaments, including the Bundestag in Germany," Barclays argues.

Staying short EUR/USD:

"We believe the market is underpricing the risks of increased volatility. We continue to recommend staying short EURUSD spot," Barclays advises.

The Trade: Barclays maintains a short EUR/USD position from 1.1240, with a stop at 1.1680, targeting a move to 1.0460.

06-23-2015, 10:37 AM
Are U.S. Savings Rates About To Rise?
On the eve of the FOMC’s rate hike, one could also ask how a potential higher interest rate affects the U.S. savings rate. After all, the basic idea we are all thought in econ101 is that when interest rates go up, savings rate should also follow and pick up: It could come because people want to postpone their consumption to a later date as they get a bigger carrot in the form of higher rates. Or perhaps it could be because higher rates also suggest a potential decline in wealth – if we were to assume that interest rates have an adverse impact on stocks and real estate – so that people feel they have less money and as such consume less. If they consume less, it means, by definition, people save more.

All this is good and seems like a very convincing story line, the only problem is that the data suggest otherwise.

http://pcm-fx.com/pcmupload/uploads/1435041379161.png (http://pcm-fx.com/pcmupload/)

The chart above shows the changes in 10-year yield bonds and savings rates. So yes, it’s long term yields, but the picture doesn’t change by much even if were to examine the 1 year yield bonds as you can see for yourself in this link to FRED (https://research.stlouisfed.org/fred2/graph/?g=1iXw).

And even though the correlation of the monthly percentage points is weak at only -0.07 the trend lines have a much strong correlation of -0.70. So this finding also suggest that in times of high interest rates, savings rates are low and vice versa (or is it the other way around).

So what is going on?

For one, it could be a matter of putting the cart before the horse: Perhaps we see low interest rates because of weaker consumption and Fed’s policy to stimulate the economy as was the case in the past few years, so of course we’ll see higher savings rates. When the economy is heating up, the Fed tries to cool it down so it won’t overheat with high inflation and as such interest rates pick up as in the mid-00’ and savings rates were low.

Another possibility is that in dire times with soaring high debt levels, people are deleveraging and spend less. So no matter how attractive or low the interest rates are, people want to keep on cutting down their debt burden.

I could go on and examine more possibilities, we haven’t even talked about the role of government and its impact on savings rates and total savings and does it cause a paradox of thrift (http://krugman.blogs.nytimes.com/2015/04/19/crowding-in-and-the-paradox-of-thrift/), and make the case for this negative relation — there are certainly more appealing “stories” that will tell why higher interest rates are also linked to lower savings.

But the bottom line is that when interest rates will start to rise again, we could see lower savings rate. Is it good or bad for the U.S. economy? It will suggest higher consumption, which most people aren’t likely to oppose. But since savings, under equilibrium and certain assumptions, equal investments; then lower savings could suggest lower investments, which isn’t good for companies. So it all depends on which side of the economy you are at. In any case, rates are likely to remain low this year and even next so we should expect any major changes in the savings rates anytime soon.

08-04-2015, 10:50 AM
GBP: Welcome To Super Thursday; What To Expect? - BofA Merrill
Traders' attention turns to Super Thursday this week when the Bank of England (BoE) simultaneously publishes its interest-rate decision, the minutes of its policy meeting, and the Quarterly Inflation Report forecasts (QIR). Here is the bottom line that Bank of America Merrill Lynch expects for this day and its immediate impact on GBP.

Rate hikes are coming, but not likely till next year:

1- "It will likely highlight that the economy looks stronger than it did three months ago. Growth bounced back to 0.7% QoQ in 2Q, slightly better than the central bank had projected. Productivity looks perkier. Faster supply growth could, in principle, mean weaker inflationary pressures. But probably not in this case as wage growth has picked up smartly too. The expansion seems to be gradually shifting onto a more sustainable footing," BofA projects.

2- "There are probably fewer reasons to think inflation will undershoot the 2% target in the medium term. Indeed, "some" members said in the July minutes that the risk of inflation rising above the target in the medium term had risen. In other words, we do not expect the BoE to push back on the recent upward move in interest rates," BofA adds.

3- "Our call is for the first 25bp BoE hike in February next year, followed by hikes of the same magnitude in August and November," BofA projects.

http://pcm-fx.com/pcmupload/uploads/1438670870031.png (http://pcm-fx.com/pcmupload/)

FX: New paradigm may bring higher vol.

4- "In FX, the impact of Super Thursday has already been felt as the GBP options market has priced in a premium for 6 August particularly in EUR/GBP. As we move into a new paradigm for Bank of England policy communication, a certain amount of adjustment is likely for the FX market as it becomes accustomed to this new format and “what to look out for”," BofA argues.

5- "Given the vast amount of information that will become available at the same time, the initial GBP reaction therefore may not necessarily be the right one in the first few instances and in some regards “Super Thursday” could turn into the UK version of US non-farm payrolls day as one of the most significant trading days for the pound. As such, we would expect GBP volatility to be elevated each quarter when the Minutes and decision are accompanied by the release of the Quarterly Inflation Report," BofA projects.

6- "What will matter for FX markets from the variety of BoE releases is the voting pattern and the extent to which some members’ decisions were “finely balanced” from the Minutes and the medium-term inflation projections based on current and market-based rates from the Quarterly Inflation Report. We would isolate these themes as focal points for the currency," BofA argues.

7- "Given the recent rhetoric from the BoE, and David Miles in particular, there is likely to be some market expectation that he has voted for a rate hike to make it a 6-3 decision. Any disappointment on a 7-2 should, however, prove short-lived as Miles is due to leave at the end of the month thus diluting the impact of his decision in any case. More important will be the first public utterances of the newly appointed MPC member Gertjan Vlieghe who will take up his position on 1 September. However, with the decision to hike rates coming into “sharper relief” at the turn of the year, we remain GBP bulls and expect the pound to rally into the start of a rate hike cycle as it has historically done," BofA adds.

12-22-2015, 02:25 PM
EUR/USD: Trading the Final US GDP
US Final GDP is a key release and is published each quarter. GDP reports measure production and growth of the economy, and are considered by analysts as one the most important indicators of economic activity. A reading which is higher than the market forecast is bullish for the dollar.

Indicator Background
Final GDP is the final of three GDP versions. Traders should pay close attention to the GDP release, as an unexpected reading could quickly affect the direction of EUR/USD.
US Preliminary GDP posted a strong gain of 2.1% for Q3, ahead of the estimate of 2.0%. Final GDP for Q3 is slightly lower, with the estimate standing at 1.9%.
Sentiments and levels
The historic Federal Reserve interest rate hike has sharpened monetary divergence with the ECB, especially with the easing steps the ECB took at its last meeting. So, the overall sentiment is bearish on EUR/USD towards this release.
Technical levels, from top to bottom: 1.10, 1.0925, 1.0880, 1.08, 1.0710 and 1.0630.
5 Scenarios

Within expectations: 1.6% to 2.2%: In such a scenario, EUR/USD is likely to rise within range, with a small chance of breaking higher.
Above expectations: 2.3% to 2.7%: An unexpected higher reading can push the pair below one support line.
Well above expectations: Above 2.7%: A strong reading would likely boost the dollar, and the pair could break below a second support line as a result.
Below expectations: 1.1% to 1.5%: In this scenario, EUR/USD could push above one resistance level.
Well below expectations: Below 1.1%. A weak gain could result in the pair pushing above a second resistance line.