The Big Picture

BoE, ECB Day Fears of increasing military action along the Ukraine border fueled demand for gold after the US joined NATO and Poland in warning about Russia’s combat readiness on the Ukraine border and Russia banned the import of agricultural goods from countries that have imposed sanctions on it. The import ban follows a threat of Russia’s Prime Minister Dmitry Medvedev to restrict European flights to Asia over Siberia. The tit-for-tat sanctions, which will in some cases hurt the Russian economy as much as the Western economies they are aimed at, have caused RUB to weaken further. We expect increased capital flight to keep the currency under pressure. Other Eastern European currencies, such as PLN and HUF, may be dragged down as well if the escalation continues.

In Australia, the unemployment rate unexpectedly jumped to 6.4% in July, the highest since 2002, from 6.0% in June, missing forecasts of an unchanged reading. The Australian dollar plunged approximately 0.50% on the news, reflecting investors’ concern over the weak labor market and its likely impact on RBA policy. However, the Australian Bureau of Statistics said to be cautious about its survey, because of certain technical problems in statistical sampling. Given the problems it is very difficult to get a clear picture of employment and we will probably need the August report to have a better view. Nonetheless the news may keep AUD under pressure following the declining commodity prices.

Today: The highlights will be during the European day, where we have the Bank of England and the ECB holding their policy meetings. Once again, BOE is unlikely to change policy and the impact on the market, as usual, should be minimal. The minutes of the meeting however should make interesting reading when they are released on 20th of August, especially after the recent poor data added concerns over the UK’s economy recovery. Some analysts expect to see the first MPC member to dissent in this cycle and vote for a rate hike, yet the weak data recently has probably lessened the likelihood of this occurrence.

In the Eurozone, in spite of signs that the recovery is weakening further, we don’t expect any policy changes at their meeting since some of the key measures the ECB announced in June are yet to be implemented. Despite the rising concerns over the geopolitical risks in the euro-area and the persistent threat of deflation, the August meeting will probably pass unnoticed. As usual, ECB President Mario Draghi will hold a press conference after the rate decision, and it is likely to prove uneventful as no fresh policy measures are expected to be announced.

As for the indicators, German industrial production is expected to have rebounded on a mom basis. Given Wednesday’s unexpected drop in factory orders it will be questionable if the forecast is met.

Norwegian industrial production for June is also coming out.

From the US, we get the initial jobless claims for the week ended 2nd of August and the forecast is for the figure to increase marginally.

In Canada, building permits for June are forecast to have dropped 1.9% mom from +13.8% in May.

Besides ECB President Mario Draghi’s press conference, we don’t have any other speakers on Thursday.

The Market

EUR/USD rebounds from 1.3330

EUR/USD fell below 1.3365 on Wednesday, but found some buy orders near 1.3330 (S2) and rebounded strongly to trade again above the former bar. Although our momentum studies favour further upside, as long as the resistance of 1.3445 (R1) holds, I still see a negative picture and I would consider yesterday’s rebound as another corrective move. The RSI moved higher after exiting its oversold field, while the MACD crossed above its signal line. Moreover, I can identify positive divergence between both our momentum studies and the price action, while on the daily chart, I see a hammer candle, adding to the view that we may experience further correction before sellers prevail again. However, much of today’s movement will depend on President Draghi’s comments at the press conference following the ECB policy meeting.

Support: 1.3365 (S1), 1.3330 (S2), 1.3300 (S3).
Resistance: 1.3445 (R1), 1.3500 (R2), 1.3540 (R3).

USD/JPY collapses

USD/JPY plunged, breaking below the near-term blue uptrend line. Nevertheless, the fall was halted near the 101.80 (S1) support barrier and the 61.8% retracement level of the 18th -30th July advance. Bearing that in mind, and that the rate is still trading above the upper boundary of the prior downside channel, I will remain to the sidelines, until we get more clues about the forthcoming directional movement of the currency pair. The MACD lies below both its signal and zero lines, while the RSI rebounded from slightly above 30 and is now pointing up. The mixed momentum signs support my view that, despite the sharp fall, the technical picture remains unclear.

Support: 101.80 (S1), 101.60 (S2), 101.30 (S3).
Resistance: 102.35 (R1), 102.75 (R2), 103.00 (R3).

EUR/GBP rebounds from 0.7920

EUR/GBP rebounded after finding support near 0.7920 (S1) and also near the point of intersection of the prior blue downtrend line and the lower bound of the near-term purple upside channel. This favors the continuation of the upside, probably for another test near the resistance zone of 0.7980 (R1). The RSI moved above its 50-line, while the MACD seems ready to cross above both its zero and signal lines, supporting the continuation of the rebound. Nonetheless, as with EUR/USD, EUR/GBP is likely to be driven by the comments of the ECB President Mario Draghi.

Support: 0.7920 (S1), 0.7905 (S2), 0.7875(S3).
Resistance: 0.7980 (R1), 0.8030 (R2), 0.8080 (R3).

Gold exits its recent range

Gold surged yesterday, breaking above the upper boundary of the range it’s been trading recently, at 1295. At the time of writing, the precious metal is trading below our resistance barrier of 1312 (R1), where an upside violation could pave the way for the next obstacle at 1325 (R2) and confirm that the 10th- 31st July decline was just a 61.8% correction of the 3rd June – 10th July uptrend. On the daily chart, the 14-day RSI moved above its 50 line, while the MACD seems willing to move above its signal line. Although this confirms yesterday’s bullish momentum, I would be cautious on further advances since the price action was halted by the 200-day moving average, which lies marginally below the 1312 (R1) resistance. This corroborates my view that only a move above 1312 (R1) is likely to trigger the continuation of the upside wave.

Support: 1295 (S1), 1280 (S2), 1267 (S3).
Resistance: 1312 (R1), 1325 (R2), 1345 (R3).

WTI moves below 97.00

WTI traded below 97.00 for the first time since the beginnings of February. In previous comments, I said that a dip below 97.00 could set the stage for extensions towards the zone of 95.85 (S1). Nevertheless, taking a look at our momentum studies, I see positive divergence between the RSI and the price action, something that gives me a reason to maintain my neutral position, despite the price dip. I would wait for the momentum indicators to confirm the price action before regaining confidence on the downtrend and flipping my view to negative.

Support: 95.85 (S1), 94.00 (S2), 92.00 (S3).
Resistance: 97.00 (R1), 98.65 (R2), 99.45 (R3).