February 21, 2016 / 11:38 PM / 2 years ago

IFR Markets ForexWatch Asia Regional Daily Briefing

SYDNEY, Feb 22 (IFR) - North America News and data
* Spike near 1.1140 in Europe's morning erased as EUR/JPY drops near 125.00
* Sub-1.1080 trades before bounce near 1.1105 into NY's open
* Bounce extends but erodes as US CPI  & AHE are above f/c, USD bid induced
* EUR/USD spikes sharply lower to 1.1067, losses erased quickly though
* Broad USD weakness emerges on UST yield erosion, EUR/USD shorts cover
* Bounce sees hourly res into 1.1140 area tested before dip near 1.1130 late
* Daily techs warn bears, bull hammer forms off 21-DMA & & RSI diverges, bounce
likely
 * EZ Feb Mfg & services  PMIs the risk to start next week
    
News from the weekend
 
UK PM Cameron announces June 23 poll on UK remaining in EU
* Cameron to campaign "heart and soul" for EU membership
* UK PM successful in getting Britain "special status" as being exempt from
founding goal of "ever closer union"
* Six members of Cameron's cabinet oppose the deal
 
After tense negotiations UK PM Cameron reached a deal in Brussels granting
Britain an explicit exemption from the founding goal of "ever closer union", one
that offered concessions on the welfare rights of migrant workers and safeguards
for the City of London. An enthusiastic Cameron said he would campaign "heart
and soul" for Britain to remain in the EU - which will be voted on by the
British public on June 23rd. Politicians opposed to the UK remaining in the EU
said they felt the deal was hollow and inadequate. Six members of Cameron's
cabinet oppose the deal - including one of his closest allies Justice Secretary
Michael Gove.  Mayor of London Boris Johnson hasn't yet indicated whether or not
he will back the deal and many feel his backing would go a long way in ensuring
the UK remains in the EU. London bookmakers place the odds of Britain leaving
the EU at 5 to 2.
 
Likely market reaction Monday morning
The GBP/USD firmed into the US close on Friday on reports there was solid
progress made between Brussels and UK PM Cameron on hammering out a deal that
would allow Cameron to announce a date for the referendum with his backing a
stay vote. The GBP/USD will likely move higher on Monday morning now that a date
has been set and there are enough concessions for Cameron to wholeheartedly back
Britain staying in the EU. There is likely going to be enough uncertainty on
whether the vote will successfully avoid a "BREXIT" to limit the GBP gains in
the immediate-term.   John.Noonan@tr.com
 
The week ahead - Quiet start before key events late in the week
It will be a fairly quiet start to the week - with most of the focus on opinion
polls ahead of the UK referendum to decide whether or not to remain in the EU.
 Most of the key data and events occur later in the week.
 
G20 meets Friday/Saturday to discuss global growth, Fed, oil prices and
China G20 finance ministers meet Friday/Saturday in Shanghai and according to
Japanese finance minister the talks will focus on China's excess capacity, oil
prices, Fed policy and global growth. Analysts are not expecting any concrete
action on all or any of the above, but the global finance ministers will likely
go out of their way to soothe market concerns.
 
Key global data in the week ahead
There won't be any first tier US data out early in the week, but the market will
gauge the health of the US housing market with plenty of readings released. On
Tuesday Case-Shiller House prices will be released along with Existing home
Sales. US Consumer Confidence will also be released on Tuesday. On Wednesday New
Home Sales will be released followed by Building Permits on Thursday. Also out
on Thursday will be Durable Goods and monthly Home Prices. Friday will be the
busiest day for US data with US trades along with second estimate US GDP for Q4.
The first estimate was a dismal plus 0.7% and the latest Reuters poll shows the
market looking for an even weaker plus 0.4%.  Core PCE (the Fed's favorite
inflation gauge) is also out Friday and is expected to come in at plus 1.2% Y/Y.
Univ of Mich sentiment will be released on Friday as well. Euro zone flash PMI
is out on Monday while Tuesday detailed German Q4 GDP will be released along
with German IFO.  EZ inflation data will be out Thursday and a slew of EZ
sentiment data will be out on Friday.  The main event for the UK will be second
release UK Q4 GDP on Thursday.  The highlight for Japanese data will be CPI out
on Thursday. Australian data includes wage price index on Wednesday followed on
Thursday by the important Aus Q4 CAPEX . China House Prices will be released on
Friday.   John.Noonan@tr.com
    
Best to worst performing currencies last week
CCY   Feb12       Feb19     %Change
AUD   0.7106      0.7155      0.69%
CAD   1.3854      1.3768      0.62%
JPY   113.27      112.62      0.57%
NZD   0.6629      0.6633      0.06%
GBP   1.4501      1.4405      -0.66%
EUR   1.1259      1.1133      -1.12%
CHF   0.9765      0.9893      -1.31%
    
Themes for Friday's trading
 
* The main theme across markets on Friday was consolidation after a healthy week
for most risk assets.
 
* Investors shrugged off higher than expected core US CPI data and Fed
expectations barely moved despite the hotter than expected plus 0.3% M/M, 2.2%
Y/Y read for January.
 
* According to the Fed Fund futures, the market is pricing in only an 18% chance
of a June Fed hike - slightly up from 15% on Thursday.
 
* The Fed's preferred inflation gauge is the core PCE and it is estimated to
remain close to 0.7% lower than the core CPI and well below the Fed's target.
 
* Wall Street closed nearly flat despite a sluggish lead from Europe and a 3.67%
fall in NYMEX crude.
 
* The Dow closed down 21.44 points or 0.13% lower at 16,391.99 after being down
over 100 points earlier in the session. The S&P closed unchanged on the day at
1,917.78 while the NASDAQ closed up 16.89 points or 0.4% higher at 4,504.43.
 
* For the week the Dow rose 2.6%, the S&P rose 2.8% and the NASDAQ gained 3.9%.
 
* It was the best week for beaten down Wall Street bulls since November.
 
* Despite ongoing talks from some key oil producers to freeze production levels
and data from Baker Hughes  showing the US oil rig count at its lowest levels
since Dec, 2009 - NYMEX Crude fell 3.67% to 29.64  on Friday after other data
showed US stockpiles at a record high.
 
* Despite swings as much as 5% per day - NYMEX Crude closed the week virtually
unchanged from the previous Friday close at 29.44.
 
* Other key commodities didn't follow the lead from Crude - with Lon Copper
closing 1.0% higher; NY Copper closing up 0.19%; iron ore closing up 1.08% and
gold closing down 4 bucks at 1,228.
 
* For the week Lon copper gained 2.69%; NY copper rose 2.37%; iron ore rose a
whopping 8.80% and gold eased 0.73%.
 
* The FX market was choppy on Friday - as the USD initially moved broadly higher
in a knee-jerk to the hotter US CPI and a separate report showing real weekly
average earnings rising 0.7% in January from plus 0.1% in December.
 
* The impact of the data faded when US Treasury yields eased back from the highs
posted in the wake of the data.
 
* The 10-year Treasury yield moved up to 1.78% before closing the day at 1.74% -
down 2 BPs from Thursday's close. The yield curve flattened as the 2-year
Treasury yield held on to its gains and closed at 0.74% - up from Thursday's
close at 0.71%.
 
* There was little change in the US Treasury yields for the week despite the
rise in risk appetite. The 2-year Treasury yield closed the week 5 BPs higher
from last Friday's 0.69% close while the 10-year Treasury yield closed unchanged
at 1.74%.
 
* The AUD/USD fell as low as 0.7068 early in the US session when European stock
markets and  Wall Street were well in the red. The USD gave back most of the
gains and then some through the US afternoon session when Wall Street recovered
and key commodities didn't follow oil lower. The AUD/USD managed to close
unchanged for the day at 0.7155.
 
* The GBP/USD eased to 1.4247 at one stage when the USD was broadly higher on
hotter US CPI and uncertainty regarding talks between the UK and EU to avoid a
BREXIT - weighed on the GBP.  The GBP started to broadly strengthen as the day
wore on, as reports from Europe suggested the UK and EU were moving closer to a
deal that UK PM Cameron could support ahead of a referendum on whether Britain
should remain in the EU. The combination of better news regarding the UK/EU and
USD weakness, late in the day helped to send the GBP/USD to 1.4405 into the
close and complete a bullish outside day reversal.  The GBP/USD closed around
0.50% higher while the EUR/GBP fell around 0.25%.
 
* The JPY continues to rise and was the best performing currency on Friday. JPY
strength is taking on a life of its own and can no longer be simply linked to
safe-haven flows. Investor risk appetite improved last week, but the USD/JPY
continued on a downward trajectory. The USD/JPY traded to 113.36 when US yields
moved higher after the US data, but there were plenty of sellers to meet the
knee-jerk buying. The USD/JPY slid as low as 112.30 during the US session and it
closed at 112.62 - down 0.56% from Thursday's close.
 
* The CAD was the worst performing currency n Friday due in part to the fall in
the oil price and in part due to weaker than expected Canadian Retail Sales. The
USD/CAD closed at 1.3768 - up 0.30% on the day.
 
* The EUR/USD fell as low at 1.1067 when the USD broadly strengthened after the
US data. For the second straight day - the market respected strong support at
1.1050/60 where the 200-day MA and a former resistance level converge. The
EUR/USD bounced during the US session when the USD broadly sold off. The EUR/USD
closed at 1.1133 - up 0.24% on the day.
 Technical view
 
Equities
 
S&P
The short-term trend lower ended very quickly after the positive price action
last week and now the 5, 10 and 20-day moving averages are pointing higher. They
aren't yet aligned in a bullish formation - so there needs to be further
positive price action for the trend to develop. The 1,945/1,965 level is lining
up as key resistance with a double top, 50-day MA and the 50% of the 2,016/1,810
move contained in that window. A close above 1,965 would confirm that a trend
higher is underway with the first target being the 61.8 fibo of the
aforementioned move around 2,000.  A close below the 20-day MA at 1,895 would
shift the pressure back to the downside. {Last 1,917.78}
 
ASX
A similar pattern to the S&P. The 5, 10 and 20-day moving averages started to
signal a trend lower, but the price action over the next few days completely
negated those signals. The ASX isn't trending in either direction, as
whippy/volatile price action continues with a downward bias. The 50-day MA is
proving to be decent resistance and it will come in around 4.995 on Monday. More
resistance is found at the Feb 1 pullback high at 5,073 and a break above that
level targets 5,090/5,100 where the 100-day MA and 61.8 fibo of the 5,331/4,706
move converge.  A nove back below 4,850 would return the pressure to the
downside  {Last 4,952.8}
 
Commodities
 
Gold  
The trend higher in gold is losing momentum, as the 5-day MA is now pointing
lower. It could be signaling a short pause before the trend resumes.  A fall
below the ascending 20-day MA (1,172 on Friday would confirm the trend higher
has run out of steam. Resistance has formed at 1,260 and a break above that
level targets the 2015 high at 1,306. {Last 1,228}
 
Iron Ore 
Iron ore continues to trend higher- with the 5, 10 and 20-day moving averages
aligned in a bullish formation and all pointing higher. The trend regained
momentum in a big way after last week's 8.80% gain which cleared the 100-day MA
(45.24 on Friday) for the first time since September last year. Major resistance
is found at the descending 200-day MA, which came in at 51.22 on Friday. The
200-day MA has held rallies for over two years and a break above that reading
would be very bullish.  A fall back below the 20-day MA (43.50 on Friday) would
suggest the trend higher is over.  {Last 47.00}
 
Lon Copper
London copper isn't trending in either direction, but the price action suggests
it could be ready to start trending higher.  A double bottom has formed around
4,443 and a close below that level would shift the pressure to the downside.
 Resistance is found at the Feb 4 trend high at 4,720 and a break above that
level would likely signal a trend higher is underway.  {Last 4,621}
 
NYMEX Crude 
NYMEX Crude continues to consolidate above the key double-bottom support ahead
of 26.00 and isn't trending in either direction.  A break below 26 would be very
bearish and signal the trend lower has resumed. A break above the 50-day MA
(32.83 on Friday) would signal a trend higher is underway and initially target
the 2016 high at 34.82. {Last 29.64}
 
FX
 
EUR/USD
The sluggish price action last week ended the short-term trend higher, as the
 5-day MA has crossed below the 10-day MA and both are pointing lower.  Key
support has formed between 1.1050/60 where the previous trend high and the
200-day MA converge.  A break below 1.1050 could see a move down to the 61.8
fibo of the 1.0523/1.1377 move around 1.0850.  A break above 1.1380 would result
in the trend higher resuming and target 1.1495.  {Last 1.1133}
 
USD/JPY
The USD/JPY continues to trend lower. The 5, 10 and 20-day moving averages are
aligned in a bearish formation and pointing lower.  Close resistance is found at
the 10-day MA at 113.87 and a close above that reading would warn the trend
lower is losing momentum.  Support has formed at the Feb 11 trend low at 110.98.
 {Last 112.62}
 
AUD/USD  
The 5, 10 and 20-day moving averages are aligned in a bullish formation and
pointing higher. This indicates it is in a short-term trend higher, but it isn't
very well formed and probably needs to clear the descending 200-day MA (0.7285
on Friday) to confirm the trend is well under way. The AUD/USD has been below
the 200-day MA since November 2014 and should be considered major resistance and
a break above initially targets the 38.2 fibo of the 0.8164/0.6828 move at
0.7335/40. A daily close below the 20-day MA (0.7097 on Friday) would negate the
bullish signals and suggest more choppy range trading ahead.  {Last 0.7155}
 John.noonan@tr.com

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