Forex Market Commentary
Once again our analysis of the FX markets stems from the 4 main pillars of study - The USD, by virtue of being the 'international' currency of global choice, the 'Euro' being the second most trade-able currency, crude oil as a barometer of economic activity and gold as an economic store of value. From these 4 pillars of study we are able to expand into an analysis of what's going on in equities and fixed income to give us a broad sweep and understanding of the markets and how they work as a whole.
Let's start off firstly equities and see the impact of the US data releases today. July non-farm payrolls had increased 215,000 comparing to the estimate of a gain of 225,000 and private payrolls were up 210,000 when analysts were expecting a gain of 212,000. Unemployment rate was unchanged at 5.3% as forecast. it's not exactly stellar positive to justify all the talk about a September rate hike and the Dow shrugged it off shaving 46 points to end up lower at 17373.38 by close of session. So that's no new news to shake up trader's expectations of the US economic performance. On the European front German industrial production unexpectedly declined in June with output, adjusted for inflation, falling 1.4% after increasing 0.2% in May 2015. Consequently the DAX finished down 77 points to close at 11,512.00 and EuroSTOXX50 lost some 25 points to finish session at 3644.00. But in Asia prior to the US data releases sessions were a all in positive territory glad to see China equities markets stabilizing with Nikkei 225 closing up 60 points to close at 20,724.56, the SSE Composite closed up 82 points to close at 3,744.20 and the Hang Sen up on a positive note up 177 points to close at 24,552.47.
From equities now let's look how the USD fared. EUR/ USD is fast losing it's rational to defend the 1.09 mark. The German production report spooked traders into a whole new series of questions concerning the Euro zone, but respectively EUR/ USD held it's ground impressively for the moment and USDX just hasn't got the US per se data punch to make the vital break through to the 100 mark. The longer term outlook remains positive for USD. The USDX remains perched 2 points below the March 15 high of 100 above the 50 day m.a. at 96 and EUR/ USD sitting below the 50 day m.a. at 1.11. Given the new need for a China play to resuscitate its stumbling economy the Euro currency is on watch for a considerable battle at the 1.05 mark in the months ahead with little reason to see a breakthrough to the upside at the 1.15 mark. Credit Suisse analysts are calling for a dismal 6.9% GDP growth in China for 2015 which will force the hands of the Chinese policy makers to consider a 5-10% devaluation of the Yuan to lift the GDP growth rate. Any such concerted Chinese bid in the US Treasuries is going to bid USD up and impact the EUR in a negative way.
Read the Credit Suisse report here -
https://www.thefinancialist.com/spark/the-tail-wagging-the-chinese-dog/
In the fixed income markets on the front end of the forward yield curve 30 day Fed funds closed at 99.740 dropping off -0.015 points and overall shaving some 0.11 points since the high of 99.8 in the 1st week of July last month. 30 day Fed funds are trading below the 50 day m.a of 99.75 to indicate trader expectation of yield increment. The 10 year Treasury note gained 0.53 points to close at 127.453 to indicate a rise in price and drop in yield over the lover term bearing pressure on the US Dollar to rise further in the short term. German Bunds had a much tougher day with prices going up sending yields near 0% on the 10 year. the 10 year fell to 0.62% on Friday spooking trader to debate if Germany could be the fist European nation to slip into negative yield territory. this time last year 10yr Bunds were trading at 1% yield. This sentiment in the Bunds does not augur well for the Euro currency as investors fly to higher quality Us treasuries and thereby cause an incremental demand for the USD vs the EUR thus putting pressure on the Euro currency to depreciate further given the lower investment yields in its bonds vs US bonds.
Crude oil is suffering from China anxiety attack for the last 2 weeks now with WTI cash well below the 50 day m.a. at $54 and with Iran heavily weighing in and concerns of production slippage in China. Gold bullion also well below it's 50 day m.a. at 1148 but finished the week stronger showing a good bounce above the 1070. Commodity prices are sinking across the board which reduces inflationary pressure and provides cheaper production input factors to help economies rebound with lower production costs sans consideration of labor costs.
Back to the US analysis an important article appears on Bloomberg today explaining the social shifts and why we ar not seeing more part time employment and Summer jobs in USA. Please read -
http://www.bloomberg.com/news/articles/2015-08-07/why-american-teens-aren-t-working-summer-jobs-anymore
and to amplify the growing concern about the US economy traders are worried that the strong Dollar is really beginning to hurt US equities markets:
http://www.bloomberg.com/news/articles/2015-08-07/disney-apple-spoil-week-for-stocks-as-dow-reaches-six-month-low
Always look to support and resistance band lines as the key to understanding in the long and short term where prices are converging. Professional technical traders use 50 day and 200 day medium and slow moving averages as fundamental cornerstones for interpreting the direction of price action.
USDX
US Dollar
97.593 -0.190 -0.24%
Support 96.736 Resistance 98.866
Forward 1 year - 98.512s.
97.593 -0.190 -0.24%
Support 96.736 Resistance 98.866
Forward 1 year - 98.512s.
EUR/USD
1.096600 +0.004255 +0.39%
Support 1.08160 Resistance 1.10640
Forward 1 year - 1.10850s.
1.096600 +0.004255 +0.39%
Support 1.08160 Resistance 1.10640
Forward 1 year - 1.10850s.
Crude Oil WTI
43.80 -0.86 -1.92%
Support 42.78 Resistance 45.70
Forward 1 year - 50.60s.
Forward 1 year - 50.60s.
Gold
1094.115 +5.065 +0.47%
Forward 1 year - 1,100.7s.
Pieter Bergli - DeLoren Trust Holdings
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