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Friday, 25 Nov 2011
Strong German Data but PMIs Point to Lower EU Growth
Yesterday's data from Germany was on the positive side but disappointing PMIs from Europe point to a recession in the euro zone.
USD - US Data Trending Higher
Mixed US data was released on Wednesday which paints a varied picture of the US economy. Q3 GDP data was revised lower at 2.0% from 2.5%. Also US durable goods orders fell by -0.7%, though the number was above consensus forecasts of a decline by -1.1%. Core durable goods orders were well above forecasts, rising by 0.7% on expectations of a gain for only 0.1%. While the revised GDP numbers are disappointing, the US economy is beginning to show signs of a recovery as core durable goods orders have climbed 6.9% year-over-year.
Personal income was also up by 0.4% on expectations of 0.3% while personal spending rose 0.1% on forecasts of a 0.3% gain. The drop in spending suggests the contribution by consumers to Q4 GDP will likely be smaller than previous estimates.
Despite the mixed economic numbers the USD continues to be supported in an environment with heightened risk aversion. Barring any breakthrough in the rift between Germany and France the USD will likely continue on this path.
EUR - Strong German Data but PMIs Point to Lower Future EU Growth
Yesterday's data from Germany was on the positive side. Q3 GDP shows the German economy is growing at a respectable pace of 2.6% y/y. The Ifo business climate survey came in with higher than expected numbers. Unfortunately the trend of European PMIs shows both the German and European economies are most likely to grow at a slower pace in Q4. With weaker growth expectations the response from the ECB will likely be for another 25 bp rate cut in December. This would have Draghi unwinding the 50 bp of tightening that Trichet carried out in the first half of the year. With another rate cut the EUR may continue to suffer from a combination of the European debt crisis and falling interest rate differentials.
JPY - USD/JPY Carving Out a Base
USD strength has helped the JPY ease from its lows as the USD is the premier safe haven currency during the European debt crisis. Lower yields on US debt may also temporarily support the USD/JPY. The USD 10-year note is currently yielding 1.88% and the spread between the US bond and its Japanese equivalent has fallen to only 0.90 in favor of the US.
The USD/JPY is carving out a base near the 76.80 level after a failed attempt to breach below the support. On Wednesday the price made a move above the initial resistance of 77.50 from the mid-October lows only to run into selling pressure. Should the European debt crisis continue to heat up the USD could strengthen and the USD/JPY may climb to 77.85 from the November 9th high.
Gold - Spot Gold Prices Consolidating before Next Move
Despite the volatility that has been seen in the financial markets spot gold prices have been consolidating from their recent declines. A bear pennant pattern has been forming on the daily chart with a falling resistance line from the November 18th high and support from the November low. The chart pattern is considered bearish as the current trend in the commodity is to the downside and the measured move from the pattern suggests a move of $8.50. Support for the commodity is found at the October 20th low of $1,607.
There is a bullish wedge pattern that has formed on the EUR/USD daily chart. The falling resistance line is off of the October high and the support line falls off the November 1st low. Resistance is found at 1.3615. A break here and the EUR/USD could test the November highs near 1.3850. Should the pair continue its trend lower the pair could encounter support at the rising trend line from the January 2010 and October 2011 lows at 1.3270. Traders may be eyeing the October low of 1.3145 followed by a deeper move to the 2011 low of 1.2875.
After breaking lower from the late October-mid November consolidation pattern the GBP/USD rose back to the previous support line at 1.5850 only to turn lower once again. This is a textbook retracement to a previously known support that has now turned into resistance. Support may be found at the October 18th low of 1.5630 followed by the October low of 1.5270. Resistance comes in at the top of the previous consolidation pattern at 1.6075.
The slow decline of the USD/JPY back to its all-time low at 79.60 continues while the charts show very little support to prevent the move. Any attempt to bid the pair higher may encounter selling pressure at the November 15th high of 77.50 followed by the long term downtrend from the June 2007 high which comes in at 79.10.
The rally from the late October low continues to gain steam as the pair approaches the October high of 0.9310. Both weekly and monthly stochastics continue to move higher. A break of 0.9310 will expose the 20-month moving average at 0.9450 followed by the February high of 0.9770. Support is off of the November 3rd low of 0.8760 which coincides with the 100-day moving average. While perhaps a bit extreme the pair may eventually target the falling trend line off of the 2003, 2008, and 2010 highs which comes in at 1.1200.
The Wild Card
The EUR/CHF has fallen to its lowest value in over three weeks below the psychological 1.23 level. With the price at 1.2250 the pair is sitting above significant support from the 200-day moving average as well as the gap from Monday November 7th.
Forex traders should note that if the EUR/CHF closes the gap it could continue to the November low of 1.2130.
|00:30||AUD||AIG Manufacturing Index||47.3||*||-|
|00:50||CAD||Tankan Manufacturing Index||12||11||-|
|00:50||JPY||Tankan Non-Manufacturing Index||19||17||-|
|01:00||EUR||German 10-y Bond Auction||1.05|1.4||*||-|
|01:00||GBP||10-y Bond Auction||-||-||-|
|USD||Total Vehicle Sales||17.5M||16.9M||-|
|02:35||JPY||Final Manufacturing PMI||51.7||51.7||-|
|08:15||EUR||Spanish Manufacturing PMI||52.8||52.3||-|
|08:45||EUR||Italian Manufacturing PMI||49.8||49.4||-|
|09:00||EUR||Final Manufacturing PMI||50.5||50.5||-|
|13:15||USD||ADP Non-Farm Employment Change||204K||206K||-|
|14:45||USD||Final Manufacturing PMI||57.9||58.0||-|
|15:00||USD||ISM Manufacturing PMI||58.0||56.8||-|
|15:00||USD||ISM Manufacturing Prices||58.0||58.6||-|