Asia is showing little movements today. CAD, CHF, EUR and GBP are all very quiet not often in10 point ranges versus the USD.
Yen seemed to be stuck in a very tiny scope. CPI figures showed Japan and rate for national headline rate deescalate versus last month after sales tax hike were adjusted. BOI already predicted the drop in the CPI as the dip over summer but then a recovery. USD/JPY moved up and down in a certain12-odd point range for the session.
NZD and AUD exhibited little more activity. NZD had buyers at 0.8560, garnering 25 points prior to losing some steam and reverting back to just below 70 before it became steady around there. IMO is still too early to be searching for an underside in pair NZD/USD.
AUD/USD was just sideways when it lost 20 points over about an hour and lost its little bit of bids at 0.9400.
Around the same time, oil lost a few cents from session highs while AUD dropped while gold was basically sideways.
Last Friday, the European Union outlined an agreement for the first economic sanctions on Russia due to the Ukraine issue; but their scope exclude technology for the importance of the gas sector.
To be included in the sanctions are access arms & high tech good and to capital markets; however, they are likely to apply these only contracts made in the future. France is given the leeway to go continue with the problematic delivery of the helicopter carriers (Mistral) they were building for Russia.
Herman Achille Van Rompuy, president of European Council, instructed EU leaders to give authority to their ambassadors to finalize the agreement not later than Tuesday so there is no need to hold a special summit to approve the sanctions.
For Van Rompuy, the sanctions package proposed provided the right balance considering costs and benefits affecting EU and in its resiliency to create sanctions or change them over time.
Sanctions are not an end but means to achieve proper negotiation and provide political solution to a crisis.
Last Friday, EUR/USD recovery materialized by the reexamination of the 1.3483 resistance line.
Today, EUR/USD no clear direction has been made despite of little weakness noticeable on the price, the technical picture is presenting a flat pair. It seems that investors are now searching for the basic catalyst to consider selling or buying the pair. The most expected one on the list today is the order for expected higher Durable Goods for June. An inference is a surprising outcome from depreciation of the dollar that would be propelling EUR/USD higher to 1.3483 or even up to 1.3508, but looking at the fluidity o0f the pair, volatility on the pair, it does not seem probable. Stance of onlookers for today is mostly neutral.
After the EUR/USD reached a new low early in this year’s session, the EUR/USD was energized to rally after its manufacturing growth suddenly strengthened in July. Becoming weaker than expected, the PMI of French Flash Manufacturing was able to overcome. German Flash Manufacturing and its PMI Services overcome estimates. PMI Euro Zone Flash Manufacturing reached at 51.9, much better than the estimated of 51.8. PMI Flash Services PMI was able to win with estimated 54.4 versus 52.8.
UK docket for this past session shows improvement. BBA home loans filed for June unexpectedly increased and surprising acceleration in growth for this month’s CBI’s retail sales survey were encouraging. However, they do not capture the attention of sterling traders as their speculation of interest rates. Minutes of the Board of England minutes and Gov. Carney speech were noncommittal but voiced anxiety of concerns of headwinds. From BoE minutes, traders learned that they voted to hold rates at 9-0 and some were afraid that rate hikes done early could appall the system.
The theory says that increasing the interest rates accelerate the value of the target currency but when New Zealand’s Reserve Bank announced that it is increasing its standard lending rate to 3.50% , the currency went down sharply. It seems that traders already priced in the hike for this particular meeting knowing it is simply to meet expectations. Remaining unknown is whether the RBNZ would go along with its tightening trend. CB wants to evaluate the recent effect of the tightening monetary policy.
Russia may have no choice but to halt gas exports to the Euro Zone even if it loses more money following more sanctions from the United States.
The country’s economy is already on the verge of collapse after stable growth for the last 15 years. This development was fuelled by high prices of commodities. Growth was recorded at 0.9 percent during the first three months of 2014. However, this can easily decline given this situation. But, Europe can also be adversely affected by this decision of Russia to freeze exports and the effects may be harmful for the European Union.
Yet, the EU is said to have sufficient supply of liquefied natural gas to meet the needs of the entire region. Right now, terminals in the United Kingdom are operating only at 20 percent of their full potential. In other words, the UK can increase flows by 160 billion cubic metres which is even higher than 155 billion imported from Russia in 2013. However, the system of pipelines does not embrace the whole region. It will leave some eastern nations without supply of LNG.
The Australian currency advanced following the initial private survey data which revealed the recovery of trading partner China in the manufacturing sector.
HSBC China Manufacturing Purchasing Managers Index for this month rose to 52.0 which is a leap from last month’s 50.7. This may be an indication that the economy is after all growing. New export orders increased at a quicker pace compared to June, according to HSBC head economist in China Qu Hongbin.
The sub-indices for employment and price also perked up. Economic activity seems to get better insinuating that the snowballing effect of mini-stimulus processes launched recently is still trickling down. Policy makers are expected to maintain their accommodative stance within the following months to firm up recovery.
Previously, the trade deficit of Japan was recorded at 822.2 billion yen. This is larger than the expected ¥643 billion.
The US Dollar and Japanese Yen traded at 101.57. This was up by 0.08 percent after the data and ahead of the talk by Bank of Japan Governor Haruhiko Kuroda during a policy forum in Bangkok. The round-table was hosted by the Bank of Thailand.
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The rise and consolidation of EUR/NZD for weeks is a preparation to continue its payoff for a longer-term as a signal for forex of its decline. On its forex time frame for 4hours, the pair created a head and shoulders pattern that is an understated forex signal for a turnabout.
With prices at 1.5520 below the neckline of the pattern that already constitute a minor psychological level, a drop to1.5420 levels is expected. Observe that the pattern is about 100 pips in height, which suggesting that the breakdown result could be of the same size.
Expected to be released this week is the PMI figures of Euro zone with France and Germany showing weaker contraction or expansion in their manufacturing and services industries. More speculation of easing from ECB spurs weak figures that might push the euro lower. As it is, ECB already lowered a number of interest rates in the June rate statement.
The best option of the pair is still its downside; however moves are limited by expectations of rate hike.
The central bank of China together with private financial companies sold a net of 414.2 billion or 88.28 billion Yuan of foreign notes last month.
This is significantly more than the net purchase of 38.657 billion Yuan made in May. The figures were provided by Dow Jones and gathered from central bank statistics. Dow Jones and Company is a publishing and financial information company in the United States.
This is the first month of net sales following 10 months of net purchases which suggests that capital started to stream out of the country.
The position of the banking system’s foreign-currency acquision amounted to 29.45 trillion Yuan at the end of last month which was lesser than 29.54 trillion Yuan during the previous month, according to figures from the People’s Bank of China. Said data also covers purchases and sales made by commercial banks but majority reflect transactions of the central bank. Majority of economic analysts see these figures as substitute for both inflows and outflows of foreign capital since most foreign notes that enter China is sold to the central bank.
The government bonds, ruble and stocks of Russia crumbles July 17 after a fresh sanction was leveled by the U.S. against Russian companies to penalize Putin for his inability to control separatists in the Ukraine. In agreement with this sanction are U.K., French and German PM and Prime Minister David Cameron said he that Europe preparing to impose to further sanctions on Russia that will be discussed in a meeting.
It appeared that Russia’s ruble dove to 2.6% within 5 days ending July 18 against at 35.1416 USD. This is the biggest weekly decline since January.
According to Bloomberg Correlation-Weighted Indexes that track 10 of the most developed currencies, for the past week, the dollar rose to 0.5%. Even the yen moved up 0.8%, becoming best performer for the euro weakened by 0.3%.
Given that, the market expects more consolidation on EUR/USD. However, this week will be seeing volatility in the euro.