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Wednesday, 7 Dec 2011
Positioning for the ECB Press Conference/EU Economic Summit
The most recent CFCT IMM data shows EUR non-commercial traders have their largest short position built in the futures market since June of last year. The one sided positioning could create a short squeeze if European leaders begin to instill a bit of investor confidence towards the end of the week.
EUR - Positioning for the ECB Press Conference/Economic Summit
The EUR is shrugging off the recent negative headlines as investors begin to position themselves prior to the ECB policy meeting on Thursday and the 2-day EU economic summit. Market expectations are for at least a 25 bp interest rate cut and some are calling for a 50 bp reduction in ECB interest rate. The rate decision will come 45 minutes before the main event which is the ECB press conference. Investors will be looking for signs the ECB has softened its stance and want Draghi to hint that the ECB will take out its “bazooka” to support the financially struggling nations with additional bond purchase.
Last week Draghi suggested if there was a commitment by political leaders to stricter budget discipline that other elements might follow, “But the sequencing matters.” Given his prior statements the ECB may wait and see what comes from the 2-day EU summit before committing itself to a more aggressive policy of supporting the likes of Italy and Spain.
Market participants may be positioning themselves for a positive outcome from the EU summit. The most recent CFCT IMM data shows EUR non-commercial traders have their largest short position built in the futures market since June of last year. The one sided positioning could create a short squeeze if European leaders begin to instill a bit of investor confidence towards the end of the week. EUR/USD resistance is found at Monday's high of 1.3490 and at Friday's high of 1.3550. Support looks to be at the November 30th low of 1.3260 followed by the October low of 1.3145.
CHF - Swiss CPI Shows Deflation
Switzerland released CPI numbers yesterday and the data is worrisome. Consumer prices declined by -0.2% m/m and the yearly rate of inflation now stands at-0.5%. With deflation creeping into the Swiss economy there are increased discussions of a pending move by the SNB to raise the floor of the EUR/CHF to 1.25 or 1.30 from 1.20. So far the SNB has been successful as investors have been the ones to push the EUR/CHF closer to 1.25 after the SNB said they would not tolerate a rate below 1.20. The SNB has done with without intervention in the FX spot market. Thus we may not expect any additional action to weaken the CHF on the part of the SNB until the market attempts to push the exchange rate under the SNB's line in the sand. The EUR/CHF has support at its 200-day moving average of 1.2220 and resistance at 1.2500.
AUD - RBA to go 3 for 3 on Interest Rate Cuts
As expected the Reserve Bank of Australia cut interest rates by 25 bp yesterday. This is the second consecutive reduction in the interest rate. The bank will next meet in February and there is the chance the RBA will go 3 for 3. Currently Australian interest rates stand at 4.25% and are still far above the rest of the major global economies, making the AUD an attractive currency. Traders should be concerned over slowing growth in China which is Australia's largest trading partner. The most recent HSBC services PMI dropped to 52.5 in November from 54.1. This is the slowest rate of growth for the survey over the past 3-months. The manufacturing PMI came in at 49, below the 50 boom/bust level and the lowest November 2008. However, with last week's cut in the Chinese reserve requirement it appears that Chinese officials are ahead of the policy curve and recognize the potential for lower economic growth. The AUD/USD maintains resistance at 1.0350 from the November 14th high where the 100-day moving average comes in.
Gold - Gold Uptrend Fails to Break Resistance
Spot gold prices failed to move above a significant short-term resistance level and have followed through with a move lower. The initial cause of the price decline can be linked to USD strength as the USD continues to move higher versus the G10 currencies. The price of spot gold topped out at $1,761 where the falling trend line off of the September and November highs comes in before the price moved lower to the initial support of $1,700. Additional support is located at the pivot from November 21 at $1,666.
The weekly chart shows the pair is trading in a symmetrical triangle pattern with the resistance line falling from the May high and support line rising from the yearly low. The first support from this chart pattern comes in this week at 1.3200. A break here will likely open the door to not only the October low of 1.3145 but also1.3050 from the 61.8% Fibonacci retracement of the bullish move spanning 2010 to 2011. The January low of 1.2875 could contain the near-term price action. To the upside the November 18th high of 1.3610 is the initial resistance followed by the mid-November consolidation at 1.3860 where the 100-day moving average also lies. The top of the triangle pattern would likely contain any move higher near 1.4230-1.2350.
Last week cable found resistance at 1.5780, a level that has proven to be resistive in the past. Additional resistance is found at the October high of 1.6165. Monthly and weekly stochastics continue to move lower and as such the November low of 1.5435 is the initial support followed by the October low of 1.5270. The last bastion of support for the GBP/USD is found off of the rising trend line from the 2009 and 2010 lows which comes in at 1.0590.
The USD/JPY is encroaching on its long term trend line off of the 2007 high and comes in at 78.70. A break above this level is needed to confirm the recent price appreciation. Both weekly and monthly stochastics are moving higher so traders may look for additional resistance at 79.50 from the post intervention high. The 200-day moving average is also lurking just below this price. Should the pair fail at the long-term trend line the congestion between 77.50-77.60 may prove to be supportive while the all-time low near 75.60 stands out as the last support.
As weekly stochasttics have already turned lower the monthly stochastics are beginning to roll over. This is occurring after the pair looks to have failed to break above the 0.9330 resistance level. As such the pair has support at last week's low of 0.9065 followed by the November low of 0.8760 and the October low of 0.8565. A break above the 0.9330 resistance could spur gains towards this year's high of 0.9780.
The Wild Card
Spot gold prices have ran into resistance at the trend line from the September and November high which comes in at $1,754. Additional resistance is found at the November high of $1,708. Forex traders should note that if the trend line holds spot gold has support at $1,700 from the November 30th low followed by the November 21st pivot of $1,666.
|08:00||CHF||UBS Consumption Indicator||1.35||-||1.25|
|08:00||EUR||GfK German Consumer Climate||10.1||10.0||10.2|
|12:05||EUR||German 30-y Bond Auction||1.07|1.3||-||-|
|15:00||EUR||Belgian NBB Business Climate||-6.2||-5.7||-|
|16:00||CAD||BoC Rate Statement||-||-||-|
|03:30||AUD||Private Capital Expenditure||q/q||-2.2%||-2.3%||-|