Forextime.com Daily Fundamental Analysis

[FXTM Official]

Forextime.com Daily Fundamental Analysis

FTSE climbs on search for yield

Global equities are on the rise and no where seems to be bucking the trend as of late. Lately with rates remaining so low and the outlook looking dovish the markets have been chasing yield, and with bond markets at record lows and offering nothing substantial, equity markets are looking to take full control. The FTSE 100 has certainly been one of those markets where even though the outcome has been somewhat dire for the economy, the stock market continues to find bullish pressure as the recent rate cut has put the spotlight back on equity returns. Record highs of an equity market are for the most part not an indicator of an economies health, but instead a case of cheap capital looking for a home in a market where yield is and will continue to be everything.

On the charts the FTSE is looking quite strong, but the correlation between movements with global equity markets is quite obvious, so it's clear that global impacts do have a far reach on the FTSE 100. Key things to watch with the FTSE 100 so far is the 20 day moving average, as the market has pushed down to it before and it has held up any further lower lows. So from a technical standpoint it has been looking quite strong and may remain so in the near future. Resistance also looks to be forming around 6817 and previously we have seen the market treat this level like a ceiling for some time when it comes to previous record highs. Support levels on the way down can be found at 6727 and 6626, with the later being the strongest level before the 20 day moving average; which is likely to catch any falls in the short term.

The Canadian economy has so far been a mixed bag but has managed to claw back some ground against the USD on the charts. Early results in the weak showed building permits m/m slowing down and coming in at -5.5% (1.5% previous), this was a much weaker response than the previous reading and shows that despite the recent rebound in oil there may still be some worry in the market. Even the current government stimulus programme may take some time to filter down into the economy in the short to medium term. Housing starts 198K were a little better and this has provided support the Canadian economy. However, at the end of the day oil prices will continue to be key for movements in the USDCAD as the correlation still remains strong.

For the USDCAD it has so far managed to get held up on the 20 day moving average when trying to push lower and claw back some ground. The bears are looking to make some ground, but the overall long term trend has been bullish in the medium to long term. Any further lower lows are likely to snag on the trend line that formed on the 16th of June that is bullish, a push through will likely find support at 1.3017.

 

[FXTM Official]

Forextime.com Daily Fundamental Analysis

Dollar weakness rattles currency markets

Dollar bears were installed with inspiration following the weak U.S productivity data which created a cloud of uncertainty over the likelihood of the Federal Reserve raising US rates in 2016. U.S productivity has fallen for the third consecutive quarter which may simply heighten fears of a deceleration in Q3 GDP consequently obstructing efforts taken by the Fed to break the trend of central bank caution. Although July’s blockbuster NFP of 255k initially bolstered expectations of a probable rate hike as close as September, investors have returned to normality with the CME FedWatch tool displaying a 40.6% probability of a December hike. Overall despite Tuesday’s soft productivity data, sentiment still remains somewhat bullish towards the Dollar and the encouraging outlook towards the US economy could provide a foundation for bulls to send the Dollar Index higher.

Stock market rally cools

Stock markets displayed signs of exhaustion during trading on Wednesday as the combination of weakening oil prices and lingering concerns over the global economy eroded investor risk appetite. Asian shares retreated from the near yearly highs with the Nikkei sinking lower after the Yen rebounded from risk aversion. Although European stocks were elevated on Tuesday from the positive earnings, the bearish domino from Asia could punish Europe as investors are repelled from riskier assets. Wall Street continues to charge into gains but questions could still be asked over the sustainability of the current stock market rally. Fears over the global economy are still visible while depressed oil prices continue to weigh on overall sentiment. The ingredients for a bear market can be seen with bears lying in wait for the current market correction to come to an end before installing a heavy round of selling.



By Lukman Otunuga, Research Analyst

 

[FXTM Official]

Forextime.com Daily Fundamental Analysis

RBNZ cuts rate to record low

The NZD has leapt up the charts after the recent news out of the Reserve Bank of New Zealand (RBNZ) to cut interest rates by 25 basis points. This record low of 2.00% had been expected by the markets and came as no surprise as August had always been touted as the time for the RBNZ to strike in the short term. And with the recent changes in mortgage lending it was always leading up to this scenario, as the RBNZ was able to hold back the tide of further property rises while cutting back interest rates. With inflation looking unlikely to be a major catalyst in the near future it certainly has opened up the possibility of further rate cuts, the question is how long can we go before the RBNZ calls it quits at the end of the day.

On the charts the NZDUSD response seems rather strange and quite bullish in the face of a rate cut, but in this case the market expectation was for exactly that and the confirmed result has only led to further buying of the NZD. The push up the charts found resistance at 0.7311 and this level was strong in holding back any further gains. For now the NZDUSD is looking very bullish and unlikely to budge unless we see any strong shocks from the RBNZ when it comes jawboning the market. The next major level of resistance is at 0.7475 and is likely to remain strong for upward movements. The major question surrounding the NZDUSD will be on the fixed interest side of things, with the rate cut putting pressure around there, especially as the US market looks to lift interest rates further.

Oil has been a big mover today in global markets after failing to find any momentum with the bulls and being pushed down by the bears after US crude oil inventories came in stronger than expected at 1.06M (-1.26M exp). This surplus is no surprise at all given the recent weakness in global economic growth and the fact that oil suppliers are keeping the taps on hoping that we will see a jump in the price of oil per barrel. For me this is a case of a race to the bottom, and while we might have already reached there - this seems to be a case of extra supply being added when the market is trying to recover.

Oil markets have so far been held up by support at 41.37 and this likely to hold in the short term, given how strong this level is looking at present. Any further drops are likely to find further support at 40.00 as this psychological has always been strong when it comes to large market movements. For the coming days though US economic data will likely have the biggest impact, rather than oil technical movements.



By Alex Gurr, Guest Analyst

 

[FXTM Official]

Forextime.com Daily Fundamental Analysis

Search for yield continues to support high yielding currencies

Meeting expectations is no longer enough to influence a currency direction. This was the response of currency traders to Reserve Bank of New Zealand which is struggling to meet its inflation rate target band of 1 to 3%. The Kiwi rallied by more than 1% to trade at one-year high despite the central bank cutting its official cash rate by 25 basis points to a record low of 2%, indicating further policy easing in the near future.

Traditional monetary policy tools are clearly no longer working anymore and governor Graeme Wheeler was not surprised by the financial markets’ reaction. When we see that stimulus abroad has sent 10-year government bond yields in Japan and Germany into negative territory, and that in UK gilts continue to post record lows, and the same applying to the periphery of Europe, this justifies financial markets behavior where investors are struggling to find yields. Expectations of Fed keeping rates on hold for 2016 is another reason to blame as markets lowered their forecast for a rate hike in 2016 to less than 40% with chances for September now standing at 9%.

In other currency news, People’s Bank of China has set the midpoint for Yuan 0.4% higher against the U.S. dollar to mark the anniversary of the one-year devaluation which sent equity markets tumbling across the globe. Since then the Chinese currency depreciated by 6.5% against the U.S. dollar, but has shown some signs of stabilisation most recently. I still believe that policy makers will continue to push the currency lower to support the weakening economy, but will not repeat the same mistake they did one year ago.

Asian equity markets were mostly in red following the drop in Wall Street on Wednesday. It seems markets are taking its cue from crude prices which fell 2.5% yesterday after data from EIA showed crude inventories rose by 1.06-million-barrel against expectations of a 1-million-barrel drop. OPEC’s monthly report showed that Saudi Arabia’s oil production hita record high last month didn’t help either as renewed fears of supply glut is likely to persist into 2017. But as long as oil holds above $40 the impact on equities should be insignificant.




By Hussein Sayed, Chief Market Strategist (Gulf & MENA)

 

[FXTM Official]

Forextime.com Daily Fundamental Analysis

Depressed oil quells stock market rally

Global stocks were searching for direction on Thursday following the sharp decline in oil prices that weighed on global sentiment consequently souring investor risk appetite. Asian shares concluded depressed mimicking recent losses from Wall Street as a combination of risk aversion and Yen’s resurgence encouraged bears to attack. In Europe, equities were mostly down after the sell-off in energy companies and could be exposed to further losses from Asia’s bearish domino. Wall Street swiftly relinquished short term gains on Wednesday amid faltering oil prices with American stocks potentially trading lower on Thursday as expectations fluctuate over the Fed raising US rates in 2016.

The stock market rally may be displaying its true colours with it becoming increasingly clear that sentiment remains a driver rather than fundamentals. Inflated expectations over central banks intervening have propped stocks higher while talks of easing Brexit uncertainties continue to attract investors to riskier assets. Although global stocks have risen to impressive levels, the worrying fundamentals of slowing global growth and overall uncertainty does question the sustainability of such a rally. It should be kept in mind that risk aversion remains rife while depressed oil prices weigh heavily on sentiment. Bears are on the prowl and the pending catalyst which could quell this rally should leave investors diligent.




By Lukman Otunuga, Research Analyst

 

[FXTM Official]

Forextime.com Daily Fundamental Analysis

WTI bears on the offense


Oil prices were left vulnerable to losses during trading on Wednesday following the unexpected build in U.S crude inventories which elevated concerns over the excessive oversupply in the markets. It is becoming increasingly clear that the oversupply woes have become a recurrent theme that could ensure oil prices remain depressed for an extended period. WTI is fundamentally bearish with further declines expected as Saudi Arabia incessantly pumps oil to meet summer usages. Concerns over slowing global growth have heightened fears that demand may be waning and such may add to the horrible cocktail that provides a foundation for bears to install a heavy round of selling.

Earlier in the week WTI was slightly uplifted by talks over a potential output freeze which created speculative boosts on prices. The appreciation was unsustainable with the decline being of no surprise as OPEC is notoriously known for holding meetings which conclude without a solution. Oil prices could remain buoyed ahead of the informal OPEC meeting in September but such may offer bears another opportunity to attack if the meeting concludes with no new measures taken. From a technical standpointWTI Crude is bearish, a breakdown below $41 could encourage a further decline towards $40.




By Lukman Otunuga, Research Analyst

 

[FXTM Official]

Forextime.com Daily Fundamental Analysis

Dollar sensitivity shakes markets


The Dollar has been flung on a chaotic rollercoaster ride with prices violently swinging between losses and gains as expectations fluctuate over the Federal Reserve raising US rates in 2016. During trading on Wednesday Dollar weakness rattled the currency markets but its resurgence today has suggested signs of sensitivity kicking in. Although sentiment remains bullish towards the Dollars, more sharp swings could be expected as anticipation heightens sensitivity. Investors may direct their attention towards Thursday’s unemployment claims which could provide some clarity on the health of the US economy. The main focus this week for the States is the US retail sales report and a positive release could provide the Fed a compelling reason to raise US rates this year.




By Lukman Otunuga, Research Analyst

 

[FXTM Official]

Forextime.com Daily Fundamental Analysis

GBPUSD hits fresh monthly low


The Sterling/Dollar tumbled to fresh monthly lows at 1.2935 as a combination of Dollar’s resurgence and ongoing expectations over the BoE cutting UK rates to near zero encouraged investors to install a round of selling. Sterling remains under pressure with prices destined for steep declines if the post-Brexit uncertainty continues to haunt investor attraction towards the currency. Although UK data has been slightly mixed, the main focus is still on the effects of Brexit to the UK economy with attention directed towards the Bank of England. The bearish sentiment towards the pound is a dominant theme which could extend through the end of 2016 consequently keeping prices depressed.

From a technical standpoint, the GBPUSD is bearish and the breakdown below 1.3000 could encourage a steeper decline towards 1.2800.

By Lukman Otunuga, Research Analyst

 

[FXTM Official]

Forextime.com Daily Fundamental Analysis

Pound drops below $1.30 despite the short-term weakness in USD

There were only few economic releases scheduled for today but despite that, we have seen a clear pick-up in volatility.

Beginning from New Zealand, The kiwi surged to its highest level since May 2015 after the Reserve Bank of New Zealand reduced the official cash rate to 2.00%. The New Zealand Dollar jumped to as high as 0.7341 level as the cut was highly anticipated before to stabilize around 0.7250 level during the U.S trading session.

Looking at the economic releases for today, the U.K housing sales declined most since 2008 as the housing market is not responding well to the Brexit.

The pound sank below $1.30 psychological barrier again and cable has reached a fresh monthly low of 1.2935 reinforcing the bearish pressure in the near-term.

In the U.S, both the Initial jobless claims and the continuing claims came out higher than expected at 266K and 2155K compared to estimates of 265K and 2133K respectively.

In the meantime, Import price index MoM beats forecasts and has registered 0.1& in July against -0.4% estimated.

Finally, the new housing price index retreated in Canada during the month of June to register 0.1% down from 0.7% previously.

Now let us have a look at the recent price action in the British pound along with the U.S Dollar.


GBP/USD

The Sterling continue treading water, as the bearish momentum remain intact. Looking at the recent price action, the pair has confirmed a negative signal in the hourly chart as prices managed to break below 1.3055 major support and showed a bearish pullback around this level yesterday. The reached as high as 1.3093 level before the rally fades reinforcing the bearish outlook in this pair.

Actually, traders should focus on 1.2950/35 support zone in the coming hours, as a daily close below it should expose 1.2900 psychological support followed by 1.2875/65 levels in extension.

In the near-term, the pair is likely to remain capped below 1.3005/20 resistance zone and only a clear breakout above those levels, will warn about a potential larger correction to the upside.

To summarize, the British pound still bearish in both the daily and the hourly chart, consequently further weakness can be seen unless a break above the mentioned above resistance zone happens.

Support: 1.2950-1.2935-1.2865

Resistance: 1.3005-1.3020-1.3036

Dollar index

After bouncing from 95.00 psychological support, the U.S Dollar found strong resistance at the 61.8% Fibonacci retracement of the recent drop seen from 97.50 peak, which keep our view neutral in the near-term.

From a technical standpoint, the index is likely to remain steady above 95.00-94.75 support zone and another rally remain possible in the coming days. Meanwhile, the Greenback has lost its bullish momentum in the hourly chart, and is heading to a negative weekly close. Therefore, we prefer to wait for a clear break above 95.90 resistance level or below 95.00/94.75 support zone to confirm the next directional move in the short-term.

Finally, traders should expect an increase in volatility as FOMC September meeting looms.

Support: 95.00-94.75-94.50

Resistance: 95.90-96.20-96.80

By Guest Analyst, FXTM

 

[FXTM Official]

Forextime.com Daily Fundamental Analysis

NZ retail sales fail to boost NZD

Yesterdays moves from the NZ economy came as no surprise with the rate cut of 25 basis points to 2.00%, and the NZDUSD jumped higher in the wake of it all, but has so far looked to retreat now as investors look to shift elsewhere. Graham wheeler quipped that before his conference yesterday that "anyone could take his role" at present as he felt unable to control the NZD given the current global climate of negative or bottom interest rates, and for the RBNZ it looks like there may be further pressure in the long run to put pressure back on interest rates if the NZD continues to remain relatively high compared to its major trading partners. But, it's not all bad news as the recent retail sales figures through shortly showed a jump for the quarter lifting to 2.3% (0.9% exp). This jump will be a positive sign that despite the recent slowdown in the economy consumers are still confident and spending in the short to medium term.

The NZDUSD has so far failed to break through resistance from yesterday at 0.7311, and after a brief attempt it pushed back down the charts as traders looked to take profit and also put pressure back on the NZDUSD in the wake of a stronger USD. Any major falls are likely to find stiff support at 0.7163 and 0.7046, further down from this and the 100 and 200 day moving average are looking very strong as well and will likely be key exit points for any traders looking for a strong technical exit. However, in the long run it may take some time given the so far bullish trend the dollar has encountered and also how keen fixed interest markets are to chase yield in commodity currencies with the rest of the world lacking.

Gold bulls have so far had a good run, but the market has been moving rapidly between levels after the recent dovish comments from the FED in previous weeks and also some positive US data which has thrown back out the possibility of a rate rise further down the line. The climb higher has also been on the back of a weaker USD, but that is also looking to change. For me gold remains a bogie man for the markets with no real direction in the short term, but a long term bullish trend that has so far remained consistent. But it's reactions to data have been somewhat more interesting and many traders may be treating it as a political hedge at present given the worries in the US political arena.

At present gold has strong resistance above it at 1358 and this level is likely to hold unless we see a shock data scenario in the services sector or labour market. Support is also looking quite tough at 1323 as the gold market looks to slip a little lower. Between these two levels it's likely we will see long wicks as traders look to find technical holes to strike and play off with the gold bugs.


By Alex Gurr, Guest Analyst