The Big Picture

Why euro hasn’t fallen yet The euro has been more buoyant than expected recently, even though the recent data from Eurozone disappointed and US data were relatively strong. I believe that in order to answer this question, we have to look at three euro-crosses, EUR/JPY, EUR/GBP and EUR/CHF. Euro/yen has been advancing since Oct. 31st when the Bank of Japan introduced further stimulus measures, to reach levels last seen in 2008. EUR/GBP moved higher following the Bank of England’s disappointing inflation report. While EUR/CHF has seen speculative selling, as the rate moved towards the Swiss National Bank floor, and the declined is attempted to be offset by purported buying by the SNB in order to defend the cross floor at CHF1.2000. All the above reasons make me believe that there is a strong appetite for euro, which make it resilient against its major counterpart, USD. The euro-bearish investors may have to rethink their stance, at least in the short-term and at least until the ECB second TLTRO allotment.

On Thursday, the US consumer prices rose 1.7% yoy in October, unhanged in pace from the previous month and above expectations of a softer 1.6% yoy print. Initial jobless claims fell to 291k from last week’s revised level of 293k, above consensus of a decline to 284k. The closely watched 4-week moving average rose to 287k from 285k a week ago, still suggesting a strong employment growth. Meanwhile, existing home sales came at 5.26 mn in October, up from 5.18 mn previously and exceeding expectations of a more or less unchanged reading. Earlier this week, housing starts declined a bit, while building permits surged in October and on top of Thursday’s existing home sales, it seems that the housing activity revives after a soft summer. A signal the market's modest recovery is supporting what appears to be growing strength in the broader economy.

Regardless of the overall positive data, the greenback failed to gain its strength and traded lower against its major counterparts. The dollar has corrected lower against most of its G10 currencies over the past few days, we believe that a structural rise in USD is taking place and the greenback could regain its strength. One possible point of concern though, as we mentioned in a previous comment, is the unseasonably extreme cold weather that could lead to adjustment of the economic data.

Oil prices moved a bit higher on Thursday and continued to advance in early European hours, as investors weighed the likelihood that at the OPEC summit on November 27, the members will cut output. OPEC members have so far resisted calls to cut output, even as oil prices have fallen approximately 25% since their June peak. The Vienna summit next week could give a better picture regarding oil, given that consensus holds among the members who have already initiated bilateral meetings. Otherwise, oil prices could decline further. (see technical part below).

Overnight, New Zealand’s credit card spending accelerated 1.3% mom in October, from +0.2% mom in September. Even though there was no major reaction at the release of the indicator, kiwi began strengthening a few minutes before the event and remained elevated a few pips below 0.7900. Since its peak in July, NZD/USD has depreciated approximately 10%. Nevertheless, since the country’s central bank in its last meeting reiterated the view that it expects further depreciation, I would expect the weakening fundamentals (low inflation rate) to weigh on the currency. However, a move below our support of 0.7660 is necessary to get more confident for further declines.

Today’s activity: We have no major events or indicators to be released from the Eurozone, the UK nor the US.

In Canada, the CPI rate for October is expected to remain unchanged at 2%, in line with the Bank of Canada target. This could prove CAD-supportive.

As for the speakers, ECB President Mario Draghi and Governor Jens Weidmann speak at the European Banking Congress.

The Market

EUR/USD slightly higher

EUR/USD moved slightly higher on Thursday, but remained below the resistance line of 1.2575 (R1). A move above here could target our next resistance at 1.2620 (R2). Our momentum studies maintain a positive tone. The RSI rebounded from its 50 line and is pointing up, while the MACD, already above zero, seems ready to move above its trigger line. On the daily chart, the price structure remains lower peaks and lower troughs below both the 50- and the 200-period moving averages, thus I would treat the recovery from 1.2360 (S3), or any extensions of it as a corrective phase. However, I would prefer to stay on the sidelines as far as the overall trend of this pair is concerned and the main reason is because I still see positive divergence between the daily oscillators and the price action.

• Support: 1.2440 (S1), 1.2400 (S2), 1.2360 (S3).

• Resistance: 1.2575 (R1), 1.2620 (R2), 1.2750 (R3).

EUR/JPY pulls back after finding resistance at 149.00

EUR/JPY tumbled after finding resistance at 149.00 (R1). Bearing in mind our near-term momentum indicators, I would stay cautious that the pullback may continue, perhaps to test the 146.50 (S1) line as a support this time. The RSI moved lower after exiting its overbought territory, while the MACD has topped, fell below its signal line, and is now pointing down. I also see a shooting star candle pattern on the daily chart, something that favors the continuation of the pullback. However, as long as the rate is printing higher highs and higher lows above both the 50- and the 200-period moving averages the overall trend remains to the upside in my view. A move above the 149.00 (R1) line would confirm a forthcoming higher high and perhaps target the round number of 150.00 (R2).

• Support: 146.50 (S1), 145.00 (S2), 143.40 (S3).

• Resistance: 149.00 (R1), 150.00 (R2), 151.50 (R3).

AUD/USD rebounds somewhat

AUD/USD rebounded somewhat on Thursday to challenge the support-turned-into-resistance line of 0.8650 (R1). Although the rebound may continue a bit more, as long as the possibility for a lower high still exists, I would adopt a cautiously negative view. On the daily chart, since the rate remains below both the 50- and 200- day moving averages, I still see a longer-term downtrend, but I can also spot positive divergence between both our daily momentum studies and the price action. As a result, I would prefer to see a dip below the key line of 0.8500 (S2) before getting more confident on the downside. Such a move is likely to confirm a lower low on the daily chart and perhaps open the way for the 0.8300 (S3) area, defined by the lows of July 2010.

• Support: 0.8540 (S1), 0.8500 (S2), 0.8300 (S3).

• Resistance: 0.8650 (R1), 0.8800 (R2), 0.8900 (R3).

Gold fails to break below 1180

Gold tried to break below the 1180 (S1) line but failed to do so and rebounded to trade near the 200-period moving average. As long as the metal is trading within the black upside channel, the near-term bias remains positive in my view. Our daily momentum studies support the notion. The 14-day RSI moved higher and is now testing the 50 area, while the MACD, although negative, has crossed above its trigger and is pointing up. However, in the bigger picture, I still see a longer-term downtrend. Hence I would treat the recovery from 1132 as a corrective move for now. In the absence of any major bullish trend reversal signal, I would prefer to adopt a “wait and see” stance as far as the overall outlook of the precious metal is concerned.

• Support: 1180 (S1), 1160 (S2), 1146 (S3).

• Resistance: 1205 (R1), 1222 (R2), 1235 (R3).

WTI marginally higher

WTI moved slightly higher yesterday and today during the early European morning, it appears ready to challenge the 50- period moving average and the resistance line of 76.00 (R1). A break above that line is likely to pull the trigger for extensions towards the next resistance at 78.00 (R2), defined by the high of the 12th of November. Taking a look at our momentum studies, I see that the RSI moved above 50 and is pointing up, while the MACD, crossed above its trigger and could obtain a positive sign any time soon. These signs confirm yesterday’s positive momentum and amplify the case that we may see WTI a bit higher in the close future. However, the overall price structure still suggests a downtrend, thus I would consider the current rebound as a corrective wave before sellers take the reins again.

• Support: 73.35 (S1), 71.00 (S2), 70.00 (S3).

• Resistance: 76.00 (R1), 78.00 (R2), 80.00 (R3).

BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS

MARKETS SUMMARY