Daily Report: Forex Markets Steady ahead of a Busy Week

The forex markets opened the week rather steadily with some weakness seen in Aussie and Kiwi. Dollar pared back some of last week’s gain but loss is limited so far. Rally in China shares lead Asian indices generally higher with Japan Nikkei up 71.53 pts or 0.46% and Hong Kong HSI up 267 pts or 1.1%. Gold struggled to take out 1310 handle and is struggling in tight range. Crude oil is also having some difficulty staying above 102 and is engaging in sideway trading. The economic calendar is rather light today with pending home sales from US featured only. Nonetheless, the week ahead is rather busy and full of market moving events.

The US will be a major focus this week. FOMC is expected to continue tapering with another USD 10b reduction in asset purchases. The Fed would likely reiterate tapering should end in October. We believe the statement would be similar to what Chair Yellen said in the recent testimony before the Congress. The annualized US GDP probably expanded 3.2% q/q in 2Q14, following the -2.9% contraction in the prior quarter. Note that the government would also release revised reading of the past 3 years. That is, the first quarter contraction might be revised. If the 1Q14 reading was revised higher, then smaller than expected rebound in 2Q14 would be seen. The employment report due Friday would probably show a 230K addition in non-farm payrolls, down from previous increase of 288K. the unemployment rate probably stayed unchanged at 6.1%. ISM manufacturing index will also be released.

EUR/USD took out 1.3476 key support level last week which suggests medium term reversal. Some solid economic data would be needed from US to push the pair away from this support level confirm the bearish case. Also, we’d need some extra strength in the greenback against Sterling and Swiss France to confirm the broad based bullishness in dollar.

Here are some highlights for the week:

  • Tuesday: Japan retail sales, unemployment rate; UK mortgage approvals; US SP Case Shiller house price index, consumer confidence
  • Wednesday: New Zealand building permits; Japan industrial production; Swiss UBS consumption indicator, KOF leading indicator; German CPI; US ADP employment, GDP, FOMC meeting; Canada RMPI, IPPI
  • Thursday: UK Gfk consumer sentiment; Australia building approvals; Japan housing starts; German retail sales, unemployment, Eurozone CPI, unemployment; US Challenger job cuts, jobless claims, Chicago PMI; Canada GDP
  • Friday: China PMI manufacturing; Australia PPI; UK PMI manufacturing; US non-farm payroll, personal income and spending, ISM manufacturing

Daily Pivots: (S1) 1.0762; (P) 1.0791; (R1) 1.0845; More

Intraday bias in USD/CAD remains on the upside for the moment. Current development The development suggests that correction from 1.1278 has completed at 1.0620 already, just ahead of 1.0608 key cluster support and long term trend line. Further rally should now be seen to 1.0960 resistance next. In case of retreat, near term outlook will now stay bullish as long as 1.0708 support holds.

In the bigger picture, there is no clear sign that the whole up trend from 0.9633 and 0.9406 is reversing. We’ll stay medium term bullish as long as 1.0608 support holds (61.8% retracement of 1.0181 to 1.1278 at 1.0600). Rise from 0.9406 is viewed as the third leg of the pattern from 0.9056 (2007 low) and is still expected to extend to 61.8% retracement of 1.3063 to 0.9406 at 1.1666 in medium term after completing the correction from 1.1278. However, sustained break of 1.0608 will argue that the medium term trend has reversed and will turn outlook bearish.

USD/CAD 4 Hours Chart

USD/CAD Daily Chart

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