Mid-Day Report: Consolidative Trading Continues in Quiet Day, Busy Week ahead

The financial markets remained steady in a quiet day today. European indices fluctuated between gain and loss so far. Meanwhile, US stocks also opened nearly flat, struggling below 17000 handle at the time of writing. 30 year yield is stuck in in tight range near to last week’s low of 3.239 while 10 year yield is hovering around 2.480. The dollar index is mildly lower today as the greenback pared back some of recent gains but it’s staying firm around 81.0 handle for the moment. in the currency markets, all major pairs are struggling in tight range for the moment with New Zealand dollar staying the weakest, followed by the greenback. Aussie is the firmest one followed by Sterling. But overall, there is no meaningful moves so far.

The dollar will look into a number of heavy weight events this week including FOMC, GDP, NFP and ISM. US equities could also be quite volatility on these events. DOW suffered a deep selloff last Friday and lost 17000 level. The medium term up trend is still intact with the index saying above 55 days EMA as well ass 16805.38 near term support. The index is also staying well inside the long term trend line. So, further rally is still in favor at this point for 100% projection of 14719.43 to 17209.51 from 15340.69. However, it should be noted that bearish divergence condition is seen in daily MACD. A break of 16805.38 should at least bring deeper correction back to trend line support (now at around 16500).

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.

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) 101.72; (P) 101.82; (R1) 101.94; More…

USD/JPY lose some upside momentum today. But with with 101.60 minor support intact, further rise is in favor for 102.26 resistance. The choppy fall from 102.79 has completed at 101.06 already. Break of 102.26 will confirm this bullish case and target 102.79 resistance and above. Overall, the pair is still bounded in the sideway pattern from 100.75 and we’d expect more sideway trading ahead. On the downside, below 101.60 minor support will turn bias back to the downside.

In the bigger picture, at this point, there is no confirmation of medium term reversal yet even though bearish divergence condition was clear in weekly MACD. Attention remains on 100.61 key support level and decisive break there will confirm the bearish case. In that case, deeper decline should be seen back to 38.2% retracement o 75.56 to 105.41 at 94.00. In case of another rise, we’ll focus on reversal as it approaches 50% retracement of 147.68 to 75.56 at 111.62.

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